UPDATE 4: Yandex, Uber to merge online taxi hailing businesses in Russia, CIS

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MOSCOW, Jul 13 (PRIME) -- Internet giant Yandex and U.S.-headquartered Uber have agreed to merge their ridesharing businesses in Russia, Armenia, Azerbaijan, Belarus, Georgia, and Kazakhstan into a company, called NewCo, where Uber will contribute its UberEATS business in the region, Yandex said on Thursday.

The Moscow Exchange had to switch Yandex common shares into a discreet mode trading for half an hour because the stock surged by over 20% on the news. It gained 22.55% to 2,000 rubles as of 3.24 p.m.

Uber will invest U.S. $225 million, and Yandex will contribute $100 million into NewCo, valuing it at $3.725 billion on a post-money basis. After these investments, and subject to certain adjustments at closing, NewCo will be owned approximately 59.3% by Yandex, 36.6% by Uber, and 4.1% by employees of the company, on a fully diluted basis.

Tigran Khudaverdyan, CEO of Yandex.Taxi, will become the CEO of the combined business.

“This combination greatly enhances Yandex’s ability to offer better quality service to our riders and drivers, to quickly expand our services to new regions, and to build a sustainable business,” Khudaverdyan said. “The combined companies currently perform over 35 million rides a month while growing over 400% year-over-year. Since founding Yandex.Taxi in 2011, we have connected tens of millions of riders and drivers to become the largest and most trusted ridesharing business in Russia and neighboring countries.”

Pierre-Dimitri Gore-Coty, head of Uber in Europe, the Middle East, and Africa, said, “This deal is a testament to our exceptional growth in the region and helps Uber continue to build a sustainable global business.”

The boards of directors of both Uber and Yandex approved the transaction, which is subject to regulatory approvals and other customary closing conditions and is expected to close in October–December.

“NewCo will draw on the strengths of Yandex, the search, maps and navigation leader in the region, and Uber, the global ridesharing leader, to develop a fast-growing, sustainable business that best serves the needs of riders, drivers and cities,” Yandex said.

After the closing of the deal, consumers will be able to use both Yandex and Uber apps while the driver-side apps will be integrated, leading to shorter passenger wait times, increased driver utilization rates, and higher service reliability.

Yandex expects no dramatic changes in tariffs either now or in the future because of the merger, a company official said.

“Prices are formed automatically in an online mode and depend not only on the tariff, but on the current balance between supply and demand at a certain point of time and for a certain point on the map,” the official said.

A spokesperson for the Federal Antimonopoly Service said the authority has not received a merger request from Yandex and Uber yet.

“Companies’ market shares will be identified during a comprehensive consideration of the request in case of its receipt,” Yelena Zayeva, director of the connection and IT control department at the service, said.

Investment company VTB Capital said “the deal is value accretive for Yandex, as this will give it a strong boost towards the consolidation of the taxi aggregator services and help improve the profitability of Yandex.Taxi.”

Yandex and Uber provide up to 80% of all online taxi aggregator services in Russia, while their share in the total taxi market turnover was still in the mid-to-high single digits in 2016. “We note that Yandex’s latest strong efforts to accelerate the roll-out of its taxi services amid tight competition with other players, both in terms of aggregators, including Uber, and traditional taxi services, put strong downward pressure on profitability,” VTB Capital said in a research note.

“We believe that the deal will help consolidate taxi aggregator services in Russia and improve the profitability of Yandex’s taxi services. We expect this to result in value accretion for Yandex. In particular, the announced valuation of the new company within the deal implies that the value accretion from the announced merger might be to the tune of 10%.”

(60.6227 rubles – U.S. $1)

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