Facebook receives major Russian investment

(The International) — Facebook announced today, May 27th, that it received a major financial backing from Digital Sky Technologies, a Russian company supported by steel tycoon Alisher Usmanov.

Digital Sky Technologies (DST) reportedly paid US $200 million for a 1.96% stake. The social networking site is now worth about US $10 billion according to private equity investors. DST is owned by Yuri Milner and Gregory Finger, founders of the Russian portal Mail.ru. Alisher Usmanov, a wealthy Russian-Uzbek tycoon, reportedly owns a 32% stake in DST.

Russian businessmen’s investment in the West

Usmanov’s move to acquire direct or indirect stakes in Arsenal and Facebook can be considered as part of an increasing trend by Russian tycoons to invest in Western companies. One of the most famous investors has been Roman Abramovich, owner of the British football club Chelsea and the 51st richest man in the world. Others have followed his lead, including Aleksandr Gayamak, now owner of UK’s football club Portsmouth, Eugene Schvidler, investor in the Chateau Thenac winery in France, Alexander Lebedev, a former KGB agent who is now majority owner of UK’s Evening Standard newspaper.

Despite recent problems in the Russian market, Russian companies continue to invest abroad, holding US $59 billion in foreign assets and being the third-largest investors in emerging economies, after Hong Kong and Brazil.

The reasons behind Russian business expansion

The reason for this expansion may be two-fold. On one hand, the first oligarchs, such as Boris Berezhovsky, mainly invested abroad out of concerns for their possessions in the aftermath of the imprisonment of tycoon Mikhail Khodorkovsky. Some of current strategic moves may still be motivated by the desire to protect a company’s assets from potential Russian state interference.

On the other hand, the initial defensive investments encouraged Russian businessmen to seek global expansion. The pace was set by Russian oil company Lukoil’s successful entry into Eastern European markets at the beginning of the 2000s. Since then, Russian companies, particularly in the steel and metalworks industry, have acquired companies in the USA, Denmark, Italy, Poland, Germany, Greece and the UK. Many of these investments have been successful, producing a turnaround and expansion of the companies acquired.

Reactions to Russian business expansion

On the Western side, the rise of Russian global acquisitions has been received lukewarmly, as fears were spurred regarding a possible Russian state influence in the West. These fears were increased when Russia bailed out Iceland from its financial crisis in late 2008. However, no official measures to block Russian investments were taken until now.

Ironically, on its side, Russian authorities are worried too about the capital flight from the country, which reached EUR30 billion in 2004 and EUR 100 billion for the next four years. They have moved to establish legal barriers to capital flight, but that has not prevented many Russian companies from continuing their global business expansion.

Effect on Western workers

So far, the injection of money has had a positive impact on Western workers, whose jobs were in many cases in jeopardy due to the underperformance of their employer companies. Still, the impact of Russian investment on Western companies has been insufficiently analyzed and remains to be further studied.