Yandex Makes Record Exit: $5.2 Billion Deal Ends Russia Presence

Russian tech giant Yandex has reached a landmark deal to sell off its domestic business units for approximately $5.2 billion, the company announced this week. The sale marks the largest exit from Russia so far following the invasion of Ukraine last February.

For Yandex, registered in the Netherlands since 2007, the agreement opens the door to focus on developing its portfolio of non-Russian technologies abroad. These include an AI cloud computing platform and self-driving car technologies with significant global potential.

At the same time, the deal allows Yandex shareholders to recover substantial value from the divested Russian businesses, which accounted for over 95% of the parent company’s consolidated revenues, assets and employees.

Yandex Russia encompassed the nation’s leading internet search engine, its top ride-hailing app, an ecommerce platform, online advertising, and other successful domestic online services.

Founder Arkady Volozh and Yandex’s current management will hold the largest ownership interest in the spun off Russian business. Vladimir Potanin, Russia’s wealthiest man, was among the oligarchs interested in acquiring the assets. But the final buyers include no sanctioned individuals.

A 10% share will go to a fund owned by Russian oil firm Lukoil. Other investors are entrepreneurs Alexander Chachava, Pavel Prass and Alexander Ryazanov.

At $5.2 billion, the deal far surpasses the previous record set by classifieds website Avito, bought last year for around $2 billion by Prosus. It reflects the massive scale Yandex reached in dominating Russia’s internet economy over more than two decades.

The sale comes after months of increasing pressure on Yandex both domestically and abroad following Russia’s invasion of Ukraine. Nasdaq trading of Yandex shares was suspended.

Yandex founder and Israeli citizen Arkady Volozh was personally sanctioned by the European Union in June for the company’s alleged support of Russian propaganda. Volozh condemned the war in August, while giving up his Yandex voting rights.

In May, Yandex sold its news aggregation platform Yandex News shortly after Volozh’s sanctions. Critics accused the service of promoting pro-Kremlin viewpoints about the war.

To facilitate the complex divestment process, Yandex registered a new entity named Yandex International in Russia’s Kaliningrad special economic zone in late 2022.

The sale is structured to happen in two stages. At least half the $5.2 billion price tag comes at a 50% discount, as mandated by Russia for “unfriendly” foreign companies exiting the country.

Around half the total will be paid in Chinese yuan from outside Russia. The remainder will come from Yandex stock already held or to be acquired by the buyers. This includes 176 million shares of the parent company.

The culmination of the deal delivers a sad end of an era for Yandex and its iconic status in Russia. But it also offers a chance for reinvention, as the company focuses its energies on developing technologies abroad.

For Yandex management, the Russian exit elicited mixed emotions about the company’s future trajectory.

“This deal achieves our overriding aim: to protect and preserve the business we have built over the last 25 years,” said Chairman John Boynton.

He highlighted the “new growth potential” ahead for Yandex’s international business units no longer overshadowed by domestic operations.

Yandex CEO Tigran Khudaverdyan struck a more somber tone about the significance of the deal.

“Yandex has been a successful and fast-growing business for many years,” Khudaverdyan said. “However, the current geopolitical situation makes it very difficult for many of our staff and for the business itself.”

Some Russian officials have been outspoken in criticizing Yandex for abandoning its home market.

“This is very bad news for Russia,” said Anton Gorelkin, deputy head of the State Duma Committee on Information Policy. “A major IT company in Russia is being taken apart and will stop being Russian.”

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The sale immediately rankled some investors in Moscow, as Yandex shares listed on the Russian MOEX stock exchange dropped nearly 3% following the announcement.

But most experts agree the deal became inevitable given the steady outside pressure on Yandex since the start of the Ukraine conflict.

The company faced growing reputational risks in continuing to operate business-as-usual in its domestic market amid international sanctions and tech restrictions on Russia.

U.S. tech giants like Google, Amazon and Apple began limiting services in Russia last spring, opening room for Yandex to expand offerings. Yet the company remained hampered by sanctions limiting access to Western technologies.

Yandex also confronted accusations of enabling Kremlin propaganda and censorship demands at odds with the company’s longtime values.

The turning point was the June 2022 sanctioning of founder Arkady Volozh by the European Union, citing Yandex’s alleged support of Russian disinformation about the war.

Volozh called the accusations “baseless and misleading” and decried the impact of sanctions. But he acknowledged that changes were needed in light of the “hard reality” Yandex faced.

“I think it’s become clear in the current environment that management and governance change is in the best interests of the company,” Volozh said.

Appointing replacements as CEO and board chair, while removing himself from company voting rights, were “difficult decisions to make.” Yet Volozh said they provided “a sustainable path forward, ensuring Yandex can operate freely and independently.”

By divesting itself fully from Russia, Yandex now hopes to focus on technologies like its AI, self-driving cars, and cloud services. Key talent may also be preserved, as some Russian tech employees seek to leave the country.

The company’s Driverless Cars unit, with operations centers in Israel and Michigan, offers particularly promising prospects. Last November, Yandex’s autonomous vehicles began providing ride-hailing services on open roads in Israeli city Tel Aviv.

Yandex plans to spin off self-driving technologies into a standalone company separate from Russia. It will retain its entire team of engineers and technology leadership in Israel.

“Cutting edge technologies like self-driving are their future,” said tech analyst Anton Pavlov. “This allows Yandex to fully concentrate where the real opportunities lie outside Russia.”

Yet Yandex also leaves behind a formidable legacy serving millions of Russian internet users since its founding in 1997.

Its search engine grew to a 60% domestic market share. Its Yandex.Taxi ride-hailing app, modeled after Uber, reached a position of dominance in over 400 cities.

Yandex even operated its own food delivery service, grocery stores and restaurant recommendations app, establishing an ecosystem modeled on China’s technology giants.

That unmatched influence across the daily digital lives of Russians built Yandex into the country’s most valuable technology company, dubbed the “Russian Google.”

For Russian President Vladimir Putin and other top officials, preserving a strong domestic tech champion to rival Western giants was a matter of national prestige. Fully losing Yandex comes as a major blow.

“They didn’t expect this separation to be so agonizing for the Russian segment of Yandex,” technology sociologist Anna Grebenyuk said of the authorities. “The Kremlin wants successful IT companies that can compete globally and pay taxes locally.”

But Kremlin demands for greater control over user data and censorship likely spelled the beginning of the end, Grebenyuk added.

“Yandex couldn’t adapt to the new reality where the government wants access to information and full sovereignty over tech companies,” she said.

Monday’s spinoff deal concludes a monumental transition for Russia’s most iconic post-Soviet internet success story.

What the future holds for Yandex Russia under full domestic ownership remains uncertain. But for Yandex itself, letting go of its former core opens a door to focus on the next generation of technologies.

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