Johannesburg - South African internet and media giant Naspers [JSE:NPN] says its increased stake in Russia's Digital Sky Technology (DST) is key to its strategy for Eastern Europe, and that it will succeed where many American entrants have failed.

The key to cracking the Russian internet market, of which DST commands 70%, is "hyper-localisation", said Antonie Roux, CEO of Naspers internet operations housed in subsidiary MIH, in an interview.

Roux said that having invested in the so-called Bric (Brazil, Russian, India, China) nations for years, the group relies on the retention of local skills.

"American companies have been spectacularly unsuccessful in un-Americanising their services for the rest of world," said Roux. "China is a graveyard of American companies that have failed there."

Naspers, on the other hand, has had massive success in China, with its Tencent acquisition ranked a top provider of internet services in the Asian country.

"We do not have expats in any of these businesses," said Roux. "Tencent has 11 000 staff and they are all Chinese," he said. "In DST, everyone is Russian. You'll find the same thing in our Indian company and elsewhere."

'Promising' emerging market flavour

Naspers will spend $2.9bn and exchange its shares in Russian company Mail.ru to up its stake in DST to 28.7%. Naspers owns 39.3% of Mail.ru and, after the transaction, DST will own 99.9% of it. Commenting on the Mail.ru investment, Roux said it had "performed really well."

"Tencent came in as shareholder in DST a month or two ago and it made sense to do this deal, because DST holds interests in various internet assets in the Russian-speaking world."

Paul Theron of asset management firm Vestact said: "I like the look of this transaction very much.

"Obviously, the parties to this deal must have had a good haggle over the value of DST's other assets versus Mail.ru - resulting in the equalisation payment of $388m. Maybe I am over-reaching here, but perhaps Naspers got the better deal."

Theron felt this may have come about because the Russians "overvalued their own asset (Mail.ru), and undervalued the US assets (Facebook, Zynga and Groupon)".

He said the positioning of Naspers as an investment entry point for global internet or social media with an emerging market flavour is promising.

According to Roux, Naspers is waiting for regulatory and final approval from the South African Reserve Bank before the DST deal is finalised.

DST provides major services in just about every internet area except search and e-commerce, making it similar to Tencent.

Naspers stocks were unchanged on the JSE on Wednesday at R283 per share.

 - Fin24.com

* Fin24.com is a division of Naspers