FOCUS: Antitrust allows Yandex.Taxi-Uber JV operations with warrant against dominance

By Yekaterina Yezhova

MOSCOW, Dec 4 (PRIME) -- The Russian antimonopoly watchdog has permitted, though with provisions, a merger of online taxi hailing businesses of Yandex.Taxi and Uber, and analysts said the warrant may point to the new firm’s possible future dominance on a 700 billion ruble market, which will double in five years.

“Estimates show that high-technological Internet services Yandex.Taxi, Uber, Gett, and others occupy 15–16% of the Russian taxi market in 2017, while Yandex.Taxi and Uber together have 10–11%. In money terms, the market’s turnover with the gray segment included will reach 650–700 billion rubles as of the end of 2017,” Otkritie Broker analyst Timur Nigmatullin said in a research note.

“In the short-term, the Yandex.Taxi-Uber deal would have a moderate influence on the Russian market due to its relatively small market share. In such a way, the Antimonopoly Federal Service did not have the grounds to block the deal judging by the current market indicators.”

The antitrust authority permitted the merger but ordered the new U.S. $3.7 billion company, NewCo, to provide customers with full information about the carrier and keep all history of trips. The companies must not ban partners, drivers, or passengers from dealing with other taxi aggregators.

The new company will operate in Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, and Russia. Yandex will invest $100 million in cash in the new company and will have a 59.3% stake, and Uber will inject $225 million and will have 36.6%. The remaining 4.1% will be held by employees.

Yandex said, “To ensure seamless service for riders and drivers, the parties intend to close the transaction after the Christmas and New Year’s holidays, in January 2018.”

After the merger, consumers will be able to use both Yandex.Taxi and Uber apps, while the driver-side apps will be integrated, leading to shorter passenger wait times, increased driver utilization rates, and a higher service reliability, according to the Internet company.

Alfa-Bank said the antimonopoly endorsement “was broadly in line with expectations, the final decision is nevertheless supportive sentiment-wise for the stock over the near-term.”

Yandex’s quotes skyrocketed 55.6% since the beginning of the year to 1,940.5 rubles per common share on November 30 in Moscow and 62.7% to $33.11 per ADR in New York.

“Although we had little doubt that the deal would be approved, it was not clear what terms might be imposed. We think that the antimonopoly service’s remedies are reasonable and should not be any problem for the joint company,” Sberbank CIB said in a research note.

“The deal is a positive development for both Yandex as a whole and its Yandex.Taxi business in particular, in our opinion. It eliminates competition with Uber, which had been stunting the growth of Yandex.Taxi. The combined business will have much better prospects than the individual companies.”

Yandex’s revenue from the taxi business soared 73% on the year to 2.7 billion rubles in January–September compared with a 23% rise in total revenue, reaching 66.2 billion rubles.

Nigmatullin at Otkritie Broker said the merger will create a very technologically-strong player with access to almost limitless capital. “It’s quite probable that in five years the joint venture would dominate the market, which is expected to double by that time. Now the taxi business contributes some 25% to Yandex’s market capitalization, but this segment will exceed the company’s search business by value already in two–three years. The antimonopoly warrant could be issued to plant the seed for the future.”

Yandex’s Chief Financial Officer Greg Abovsky said earlier that NewCo will most likely hold an initial public offering (IPO) in the U.S. by the first half of 2019.

The Internet company has high hopes for its ride-hailing business. In April–September user growth in Moscow increased by “triple digits,” Abovsky told Bloomberg.

“The news is sentimentally positive for Yandex in the long run. We believe that the taxi-service IPO would unlock its value, and boost Yandex’s own shares,” investment group Aton said in a research note.

(58.5182 rubles – U.S. $1)

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