While divorcing with Sberbank, Yandex raises $1 billion to finance e-commerce projects on its own

03 July 2020

Major changes took place in late June on the Russian e-commerce and e-payment scenes. Yandex, the Russian Internet major, and Sberbank, the state-controlled financial and technology giant, announced an agreement “to reorganize their two joint ventures” – Yandex.Market and Yandex.Money.

In plain language, this is a divorce. Yandex is to own entirely the e-commerce platform Yandex.Market while Sberbank is to take full control and rebrand payment service provider Yandex.Money.

Under the terms of the transaction, Sberbank will sell all of its shares in Yandex.Market (45%) to Yandex for a cash consideration of 42 billion rubles (around $590 million at the current exchange rate). At the same time, Yandex will sell its participatory interest in Yandex.Money (25% plus one ruble) to Sberbank for approximately 2.4 billion rubles ($34 million).

The transactions have been approved by the Board of Directors of Yandex and the Sberbank Executive Board. The Yandex.Market transaction is subject to antitrust approvals. The transactions are expected to close in the third quarter of 2020, as announced by the companies.

Initial e-commerce romance

Yandex and Sberbank agreed their e-commerce alliance just three years ago, each partner receiving equal shares in the new joint venture. While Sberbank put $500 million on the table (the largest ever capital injection in Russian e-commerce), Yandex contributed its existing marketplace Yandex.Market.

In late 2018, the joint venture launched two additional online marketplaces. One of them, ‘Beru’ (“I’ll take it”), was dedicated to domestic online sales, while the other, ‘Bringly,’ focused on inbound cross-border sales.

Bringly, however, shut down a year later, due to a mix of strategic and market reasons.

Yandex now seems bullish on the prospects of Yandex.Market, which it will soon control entirely. The company’s COO and CFO Greg Abovsky stated: “Given the great potential for further growth of e-commerce in Russia, we believe now is the right time for us to fully consolidate operating control over Yandex.Market and accelerate our e-commerce strategy.”

To buy out Sberbank’s share and accelerate its push into online retail, Yandex raised $460 million NASDAQ – on which it has been listed since 2011 – and closed a private placement of around $600 million. In total the company sold 20.3 million new shares at $49.25 apiece for $1.06 billion (before deducting underwriting commissions, placement agent fees, etc).

Among the investors in the private placements are VTB Capital, the investment business arm of state-controlled bank VTB Group; Ervington Investments Limited, a company whose ultimate beneficiary is Russian oligarch Roman Abramovich; and Treliscope Limited, a company whose ultimate beneficiaries are Alexander Abramov and Alexander Frolov.

These capital injections “will give us the firepower we need to build one of the leading e-commerce players in Russia, while also maintaining the flexibility to pursue other strategic opportunities,” said Abov.

Sberbank’s alliance U-turn

The relationship between Yandex and Sberbank started weakening in 2018, after Yandex co-founder and main shareholder Arkady Volozh declined Sberbank’s pressing offer to buy a controlling stake in the company.

In November 2019, Sberbank announced it will relinquish its so-called “golden share” in Yandex, which it had held since 2009.

Meanwhile Sberbank announced joint projects with Mail.ru Group, Yandex’s archrival on the Russian online scene. Their alliance started in July 2019 with the creation of a joint venture, named ‘O2O,’ to develop ride-hailing and food delivery activities.

A few months later, in November 2019, Sberbank and Mail.Ru Group decided to develop jointly digital projects and AI-powered products in Russia. According to corporate announcements, this cooperation could cover such fields as advertising products for small and medium-sized enterprises, joint propositions for Mail.Ru Group and Sberbank clients and users, as well as sharing of technological development expertise and new complex solutions.

Almost simultaneously, Sberbank announced plans to acquire a $170 million stake in Mail.ru Group. It is also considering a large capital injection into Ozon.ru, one of the leading Russian e-commerce companies.

Posing yet another challenge to Yandex and its subsidiary Tandex.Taxi, Sberbank also made steps on the market of driverless vehicles: in December 2019, the financial giant bought a stake in Cognitive Technologies, a Russian software corporation that develops AI-based driver assistance systems.

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