My Facebook Play Selling a Bit More

If you remember, I’ve noted a couple times in the last few months that the stock I was using to (in part) speculate on a mania in facebook shares before and during the IPO process is Mail.ru, the Russian internet company that owns a bit over 2% of facebook shares pre-IPO.

Mail.ru just announced, as part of the ramped-up IPO, that they will now be selling a planned 19 million shares or so in facebook, which is a bit more than a third of their total facebook shareholding. That number will probably hit about 21 million shares if the overallotment hits all of the offering parties, which I expect it will (the IPO, despite recent attempts to talk down the shares with chatter about their still-weak ad offering, is going to go ballistic on the first day — the demand is just ridiculous). They’ll still own about 35 million shares after the IPO.

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I’m assuming that the IPO will price well above the range and rise at least 50% from there on the first day pop, so I’ll guess that the selling price for shareholders will be $40 (the range is currently $34-38, it sold at near $50 on the secondary market a few months ago before the IPO announcement). That means Mail.ru will book something in the neighborhood of $800 million in cash, and they will continue to own shares that are worth roughly $1.4 billion at that $40 price. A lot of those shares are locked up for an extended period of time, up to a year probably, so that’s one motivation for offering the shares in the IPO instead of holding on to see if you can sell at a higher valuation, that holding on would mean waiting for a long time and taking some risk if things don’t work out. So they’ve effectively taken some of their exposure to facebook off the table but, post-IPO, will still hold a meaningful position in the stock of a bit over 1%.

I still like the underlying businesses at Mail.ru, and still think their windfall from facebook should make the shares worth north of $40 … but if we get more of a pop following the IPO and facebook trades at, say, $80 in a couple weeks, I might sell Mail.ru on that pop and look to buy back in later. ...

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