Google Buys Local Ad Firm for $140M

Internet search giant Google on Friday announced that it was buying Begun, Russia's leading online context advertising service, from Rambler for $140 million, a deal that boosts the U.S. firm's challenge to Yandex.

Rambler, which currently owns 50.1 percent of Begun, will buy the remaining 49.9 percent of the company's shares from Bannatyne Limited, an affiliate of the Finam group of companies, Rambler Media spokesperson Alexander Kovalyov said Friday.

Subsequently, Rambler will sell Begun to Google.

Finam will receive $69.9 million from the transaction.

The deal will provide advertisers with access to a larger network of web sites, which will gain a greater number of advertisers, Google said in a statement Friday.

"The agreement means that even more users, advertisers and partners will get better results and more relevant advertising," Mohammad Gavdat, Google's managing director for emerging markets, said in the statement. "This agreement emphasizes our desire to invest in Russia, where the online advertising market is growing at a tremendously fast pace."

Under the deal, Rambler will place Google's ads alongside its own.

Rambler, which will receive about $50 million from the deal, said in a statement that the country's Internet advertising market would continue to grow by around 50 percent per year, surpassing $1 billion by 2010.

The two search engines are expected to close the deal in September, Kovalyov said.

"The entire industry will benefit from this transaction, as there is a high potential for synergies," Begun general director Alexei Basov said in the statement, citing Google's technology and his company's connections in Russia.

Rambler's shares on the London Stock Exchange gained 4.1 percent at Friday's close. Google closed in Nasdaq trading down 9.8 percent after reporting a profit below analysts' estimates, Bloomberg reported.

Konstantin Belov, an analyst at UralSib, said the deal meant that Google, a relative latecomer in Russian-language content, would now pose "a serious threat" to Yandex.

"For Google, this is a very good price. It can definitely afford to spend that amount of money," Belov said.

"The Russian internet advertising industry, which is quite small at the moment, has large growth potential, especially as long as the Russian economy continues to expand," Belov said. "The number of Internet users and advertisers will increase tremendously within the next five years, so it make sense that Google wants a larger market share."

Russian-born Google co-founder Sergey Brin told Vedomosti in May that the company had been working to improve its Russian-language search technology, including the introduction of "far better morphology" to analyze word construction.