Uber Tie-Up Sends Russia’s Yandex Shares Rocketing Higher

Uber announced a major partnership with Yandex Taxi to serve Russia, Azerbaijan, Belarus, Kazakhstan, Armenia and Georgia to create a combined company worth more than $3.7 billion.

The new company will be valued at $3.725 billion, the companies said in a statement. Uber will invest $225 million in cash for a 36.6% stake, while Yandex (YNDX) will invest $100 million and control 59.3% of the company. The remaining 4.1% of the company will be owned by employees.

While both companies are touting the deal as a great opportunity, it will continue to raise questions about Uber’s ability to achieve global dominance in ride-sharing or be forced to search for help or even give retreat from lucrative areas.

In August 2016, Uber decided to swap its local Chinese operations for a 20% in China’s ride-share giant Didi Chuxing.

For Yandex investors – it’s a multinational tech company than just a ride provider — it’s a boon as shares soared on the acquiescence of the preeminent ride-share rival.

Here’s what to know about the deal.

The Uber Perspective

“The new company’s goal will be to serve the needs of riders, drivers and cities as we develop a fast-growing, sustainable ridesharing, food delivery and logistics business in the region,” Pierre-Dimitri Gore-Coty, who runs Uber’s Europe, Middle East and Africa (EMEA) business in an e-mail to employees that was later posted Uber’s website.

“Combining Yandex’s local expertise in search, maps and navigation with our leading global experience in ridesharing will enable us to build the besplt local services and provide a credible alternative to car ownership across the region,” Gore-Coty wrote.

“For the foreseeable future, the Uber and Yandex brands and rider apps will continue to operate, while the driver apps will be integrated after the transaction closes. The transaction is subject to regulatory approvals and other conditions and is expected to close in Q4 of this year.”

The e-mail/press release touted Uber’s influence.

“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,” he said. “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% ownership stake will be worth almost $1.4 billion.”

Uber investors have been concerned about its international reach, especially losses in India and Southeast Asia, according to Bloomberg. But net revenue was $1.5 billion in the first quarter.

The Yandex View

“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,” wrote Yandex Taxi CEO Tigran Khudaverdyan. “Our goal is to create a platform that rivals car ownership or public transportation in accessibility and convenience.”

“Analysts estimate that the size of the official Russian taxi sector is approximately $8.4 billion (2016, VTB Capital). Unofficial or “gypsy cab” sector is estimated at another $1.9 billion (2015, Analytical Center of the Government of Russian Federation). That means that the combined company’s share of the taxi sector would have been only about 5-6%.”

VTB Capital upgraded the company to Buy with a $31 price target last month.

Shares of Yandex jumped nearly 16% Thursday to close at $31.68.

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