Uber And Yandex Merge Daring A Billion Dollar Empire

Uber and Yandex merge

Here is something new: Uber and Yandex, the “Google of Russia,” are partners now. They have agreed to combine their Russian ride-sharing business and launch a new independent company. The new company’s targets are Russia, Kazakhstan, Azerbaijan, Armenia, Belarus, and Georgia. So Uber and Yandex merge and a new company comes to life. It is going to be called “NewCo.” Yandex will own it by 59.3%. On the other hand, Uber is going to own it by 36.6%. And the rest, which is 4.1%, will be owned by employees. Meanwhile, on the side, Uber will continue rolling its UberEats. And if you don’t know about it, it is a food delivery service.

What did Yandex do?

Sergey Libin, who is an analyst at Raiffeisen Bank in Moscow, shared his opinion. “With this deal, Yandex eliminates an aggressive competitor which, in the long run, will lead to improved monetization and profitability. It is a good deal.”

Across Russia and nearby regions Yandex is well known for its online technologies. But here is something you might not know. It has actually operated an Uber-style taxi app. And this is not news: the app exists for a number of years now. The great thing is that it just announced its slashed prices. So, Yandex cut its prices in order to stay ahead of the local competition. And the main local competition it has are Uber and Gett. Well, good for Yandex, right?

What did Uber do?

Uber was actually facing firm regulatory difficulties in Russia. And even though it got the approval to continue operating in Moscow last year, it got a nice restriction. Only licensed taxi drivers could be Uber drivers. And if you think about it, it is only better and safer for everyone.

This is how Uber and Yandex merge

So, you are probably thinking about who is investing into this new company and how much? Well, Uber is investing $225 million. However, Yandex is only investing $100 million and the post-money valuation attached at $3.725 billion. Now take a deeper look. Uber is putting way more money into the new company. Yet it is only gaining a little more than one-third of the ownership. Why is it that way? Well, it indicates that Yandex holds a much larger share of the local market. And it also shows that Uber has failed to overturn the incumbents.

According to Yandex’s issued set of slides, it is doing very well. It is currently on track to do 285 million rides in 2017 across the specified regions. And where is Uber? It is on track to do around 134 million rides, which is more than half of what Yandex is going to do.

History has a weird way of repeating itself

This reminds us of something similar that happened in China last year. Uber chose to be run over by local etaxi Didi Chuxing in a $35 billion deal when he could have continued to hemorrhage cash in efforts of infiltrating the local market.

Pierre-Dimitri Gore-Coty, who is Uber’s head of EMEA, expressed his thoughts about Uber and Yandex merge in an email sent to employees, saying that, “Combining our business with Yandex will give us a very significant stake in a new company which will initially serve more than 35 million trips each month and operate in an incredible 127 cities in six countries across the region. Uber will also have three of the seven seats on the new company’s board and, together with the $225 million cash investment we are making in the new company, our 36.6 percent ownership stake will be worth almost $1.4 billion.”

Meanwhile, he also added, that “this is an exciting opportunity in a unique situation and our operations in other countries will not be affected.” And do you know who will be the head of the new company? Tigran Khudaverdyan, who is currently the CEO of Yandex.Taxi. “NewCo” will also tap Yandex’s existing technologies, including maps and navigation.

The riders will be able to use both Yandex and Uber apps once the transaction is complete. It is expected to happen in Q4. However, the driver apps will be integrated “leading to shorter passenger wait times, increased driver utilization rates, and higher service reliability,” according to a separate Yandex statement. So get ready Russia and nearby markets: Uber and Yandex merge and “NewCo” is coming.

Armen Margarian

Armen Margarian is an attorney with The Margarian Law Firm.

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