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Uber, Yandex to combine ride-hailing in Russia

Reuters file photo

A Yandex taxi is seen in central Kiev in May.

FRANKFURT/MOSCOW (Reuters) — Uber and Yandex, the “Google of Russia,” have agreed to combine their Russian ride-sharing businesses, with Yandex the leading partner in a deal that extends to five nearby markets.

The deal marks another pullback from Uber’s breakneck global expansion, a year after its exit from China, though it does have potential upside for the Silicon Valley online taxi hailing pioneer, based on its 36.6 percent stake in the merged company.

For months, Uber has struggled with legal setbacks, accusations of a sexist work culture and driver protests, culminating in the June departure of cofounder and Chief Executive Officer Travis Kalanick under investor pressure.

Shares in Russia’s largest internet company lept almost 20 percent as investors bet the deal could accelerate the move of Yandex’s taxi business into profitability.

Thursday’s agreement follows the recent merger of rival Russian taxi players Fasten and Rutaxi, marking a rapid consolidation of the market.

“With this deal Yandex eliminates an aggressive competitor which, in the long run, will lead to improved monetization and profitability,” said Sergey Libin, an analyst with Raiffeisen Bank in Moscow. “It’s a good deal.”

San Francisco-based Uber has agreed to invest $225 million while Yandex will contribute $100 million into a new joint company in which Yandex will own 59.3 percent and employees will have a 4.1 percent stake.

In a joint statement, Yandex and Uber said they would join forces in Russia, Armenia, Azerbaijan, Belarus, Georgia and Kazakhstan to create a new company operating in 127 cities, in a deal expected to close in the fourth quarter.

Yandex.Taxi CEO Tigran Khudaverdyan will become the CEO of the combined business and Yandex will consolidate the new company’s results in its financial statements. Yandex will hold four board seats, with Uber holding three, they said.

Uber will contribute its UberEATS food delivery business in the six-country region to the new venture.

“There is ride-sharing and food delivery and beyond that there are also numerous opportunities in logistics that we will explore,” Yandex Chief Financial Officer Greg Abovsky said on an investor call. Abovsky added the combined company could be spun off with a separate stock listing in a few years.

The share move for Yandex, known as the “Google of Russia” for its dominance of the region’s web search, maps and mobile navigation markets, signals that roughly half of the company’s market capitalization lies in investor hopes for its taxi unit.

Otkritie brokerage analyst Timur Nigmatullin estimated that, before the deal, Yandex.Taxi represented around 20 percent of the parent company’s market capitalization. Otkritie estimated the combination could push the taxi business into profitability by 2018 or 2019.

Based on the valuation of the combined company and Yandex’s share in it, he said the taxi business now accounted for up to 50 percent of Yandex’s equity value.Speech

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