Uber cedes Russia to Yandex with $3.7 billion merger agreement

Uber Technologies Inc. is handing over the keys to its business in Russia.The San Francisco-based company and Yandex NV are merging their ride-hailing businesses in Russia. Uber will invest $225 million and take a 36.6 percent stake in a new, yet-to-be named venture that will be valued at $3.73 billion, the companies said in a statement Thursday. Shares of Yandex, which will invest $100 million and own 59.3 percent of the new enterprise, jumped as much as 19 percent in early trading in New York to $32.44, their highest level in three years.

The deal with Yandex is Uber’s second retreat from a major market. Last year, Uber left China in exchange for a 17.5 percent stake in rival Didi Chuxing, after losing more than $2 billion battling its competitor. While Uber remains the dominant ride-hailing operator in the U.S., it has been on the defensive, beset by scandals that led to Travis Kalanick’s ouster as chief executive officer. The agreement with Yandex is part of Uber’s renewed effort to improve revenue, narrow losses and resolve its legal issues.

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

Tigran Khudaverdyan, head of Yandex.Taxi in Russia, will become CEO of the combined enterprise, Uber and Yandex said. Together, their businesses handle 35 million rides a month, and will also operate in Kazakhstan, Azerbaijan, Armenia, Belarus and Georgia. The deal is expected to close in the last three months of 2017.

Uber’s exit from Russia could be a precursor to more deals in other big, fiercely competitive ride-hailing markets. Investors have raised questions as recently as this month about Uber’s continued losses in India and Southeast Asia, asking privately whether the company would be better served by cutting deals with market leaders Ola and Grab, two people familiar with the matter said.

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Kalanick and his longtime deputy Emil Michael both helped negotiate the deal in Russia before they were pushed out of Uber last month, people familiar with the matter said. They were key deal-makers for Uber. Under their watch, the company inked an armistice with Didi last year, partnerships with automakers Daimler AG and Toyota Motor Corp., and with credit card companies including American Express Co. Cameron Poetzscher, Uber’s vice president of corporate development, and Fraser Robinson, the head of business in the region, also played major roles in negotiating the deal with Yandex.

Uber’s loss before interest, taxes and stock-based compensation totaled $708 million in the first three months of the year, an improvement from the $991 million loss in the prior quarter. Losses narrowed further in the latest period, Uber recently told investors. Net revenue was $1.5 billion in the first quarter, according to its more conservative accounting method.

In Russia, Yandex.Taxi has gross bookings of $1.01 billion on an annualized basis, while Uber had $566 million, according to a presentation prepared for investors. The new, unnamed company “will have the right to use Yandex.Taxi and Uber brands in the region,” the companies said. Apps from both ride-hailing companies will continue to be offered, while the driver app will become a single platform. They will also operate the UberEATS food-delivery service.

Start of Journey
“Many of us who work inside Yandex feel that everyone has already switched to ride-sharing, but in reality, we are just at the beginning of this journey,” Khudaverdyan wrote in a blog post.

The taxi business is separate from Yandex’s other ventures, including internet search, and an initial public offering of the joint venture is a possibility in the future, Yandex Chief Financial Officer Greg Abovsky said on a conference call.

As part as the deal, Yandex signed a roaming agreement with Uber so users of its taxi app can hail Uber rides when traveling abroad, Yandex executives said.

The implied valuation for Yandex.Taxi of about $2 billion in the deal with Uber is “substantially” higher than the levels expected by the market, BCS Global Markets said in note to clients Thursday. “The effective elimination of Yandex’s most dangerous competitor represents the key upside surprise, while it should also point to an easier and shorter path to profitability,” BCS said.