Uber strikes deal with Yandex, giving up on dominating ride-hailing in Russia

Uber just stopped fighting to dominate the ride-hailing market in Russia. The company announced Thursday that it will merge its business there and in a few other former Soviet countries with part of Russia’s Yandex to form a new ride-hailing, food-delivery and logistics company.

Yandex, the Russian Internet search engine leader that also offers mapping services and runs a taxi-booking app, said the new company will serve markets in Russia, Azerbaijan, Belarus and Kazakhstan, where Uber already operates, and in Armenia and Georgia, where Uber does not have a presence.

The joint venture — which has yet to be named — is valued at about $3.7 billion, and Yandex will hold a majority stake, according to the two companies.

Under the deal, Uber will contribute its ride-hailing and UberEats operations in those countries (which it spent $170 million creating), as well as $225 million in cash. Yandex will contribute its Yandex.Taxi operations and $100 million in cash.

Uber will own 36.6% of the venture and control three of its seven board seats. Yandex will own 59.3% and control the other four board seats. Employees of the new company will own the remaining 4.1% on a fully diluted basis, Uber and Yandex said.

“Combining Yandex’s local expertise in search, maps and navigation with our leading global experience in ridesharing will enable us to build the best local services and provide a credible alternative to car ownership across the region,” Pierre-Dimitri Gore-Coty, head of Uber’s business in Europe, the Middle East and Africa, said in an email to employees.

Tigran Khudaverdyan, the chief executive of Yandex.Taxi, is slated to become CEO of the new venture.

Once the deal is closed, riders will still be able to use both the Yandex.Taxi and Uber apps, while for drivers, the two apps will be integrated.

Gore-Coty said the new company would initially have 35 million trips each month, operating in 127 cities in the six countries. Last month, Yandex booked about twice as many rides in the region as Uber, the companies said.

The deal is expected to close in the last quarter of this year and still needs regulatory approval.

At this stage of its development, the money-losing Uber is looking to move to profitability, reviewing regions to see if there are prospects for making money, said independent technology analyst Jan Dawson of Jackdaw Research.

If the prospects aren’t good, Dawson said, Uber is likely to get out.

This marks the second time in a year that San Francisco-based Uber has struck a deal to pull back from a major market.

Last summer, Uber agreed to have its China brand and operations absorbed by Chinese rival Didi Chuxing in exchange for a 5.89% share of the combined entity, valued then at $35 billion.

“The deal with Yandex is pretty similar to last year’s deal with Didi,” said Akshay Anand, executive analyst at Kelley Blue Book. “I think a big part of the reason for that is Uber recognizing there is a bigger competitor in a foreign country who has a better foothold in that market.”

Anand said the Russia deal is a little more lucrative for Uber than the one in China. He said for Uber, the deal with Yandex seemed more like a “true partnership.”

“It would be like a Russian ride-sharing company trying to come in and compete with Google, if they had a ride-sharing app,” Anand said. “Some people refer to Yandex as Russia’s Google because it is such a well-established company. It makes sense from a financial perspective and an overall effort perspective for Uber to enter this deal.”

Yandex is one of Russia’s most successful Internet enterprises, accounting for some 65% of all searches and operating popular map and public transit apps. Its U.S.-traded shares jumped 16% on Thursday.

Thursday’s announcement comes as Uber tries to rebound after months of scandals culminated in Travis Kalanick’s resignation as CEO.

Anand said he suspects the Yandex deal was in the works before Kalanick resigned.

Joining forces with Yandex was a way for Uber to find sustainable success in the region, Anand said.

Kalanick “wanted to dominate the world,” Anand said. “He wanted Uber everywhere .... I think it’s safe to say this was in the works before he left. When you look at deals like this, really, these are things that take months and months and sometimes years.”

The Associated Press was used in compiling this report.

UPDATES:

1:50 p.m.: This article was updated throughout with Times staff reporting.

This article was originally published at 5:15 a.m.