The Bell has learned that Russia’s largest bank, state-owned Sberbank, is in talks to buy a major stake in the largest private internet company Yandex — up to 30% of the company. The state-owned bank argues this will protect the company from potential problems from both competitors and the state.

The bid

Two sources close to Sberbank management and the negotiations told The Bell that Sberbank’s management is in talks to buy a major stake in Yandex. The bank is asking for a 30% stake in Yandex, they said. A veto right on key decisions is also being discussed, one of the sources confirmed. There isn’t a framework for the deal yet, but various options are being discussed — from a new share issue and share buy-back in the open market to the sale of some of Yandex’s primary shareholders’ stakes.

Sberbank CEO German Gref’s first deputy, Lev Khasis, is leading the negotiations for the bank, sources told The Bell. The Bell was not able to reach Khasis for comment prior to publication. A representative of Yandex said that the company does not comment “on rumors”. Sberbank’s press service announced that the bank “did not receive an offer to buy Yandex shares and has not approached Yandex with such an offer”.

Yandex is Russia’s largest internet company in terms of revenues. The company has Russia’s most popular search engine with 56.2% market share, the largest online marketplace, Yandex Market, and Russia’s largest ride hailing service, Yandex Taxi. At the beginning of this year, Uber bought 36.9% of Yandex Taxi after having lost its battle with Yandex for leadership in Russia’s market. In the deal, Yandex Taxi was valued at $3.8 billion. Yandex’s services in Russia reach a total audience of 40.1 million.

Yandex’s market cap on NASDAQ is now $11.5 billion. A 30% stake in the company at today’s valuation would be worth $3.8 billion. Yandex’s shareholders’ equity is divided into two classes of shares. A-class shares carry 1 vote per share; B class shares carry 10 votes each. Most B-class shares are owned by management which gives them collectively 55.4% of the votes, and therefore operational control over the company. Yandex’s founder, Arkady Volozh, is the company’s largest shareholder in terms of both votes (49.23%) and equity (10.35%).

After The Bell published the news of talks between Sberbank and Yandex, shares in Yandex fell by 9.4% on NASDAQ; the company lost more than $1 billion in market capitalization.

Government-backed protection

Sberbank argues that the deal would protect Yandex from potential trouble — for example, from competitors, one source explained to The Bell.

This summer, Yandex was involved in a public conflict this summer with another state owned company, Gazprom Media, which led to a threat of a ban of the Yandex Video service. In its conflict with rights’ owners, whose losses from piracy were estimated by Rambler Group co-owner Alexander Mamut to be RUB 70 billion (more than $1 bn), Yandex now finds itself almost alone, sources from a major internet holding and an official from a related government office told The Bell.

Since 2009, Sberbank has held a priority share in Yandex which was purchased for a symbolic €1. From the company’s publicly available documents, it appears that this priority share gives Sberbank the right to block the purchase of more than 25% of Yandex’s shareholders’ equity and/or votes by any of the company’s shareholders or a third party. A similar right exists regarding the sale of a stake larger than 25% to a third party. However, the golden share does not give Sberbank the right to influence operational decisions, nor does it give it additional dividends.

Sberbank and Yandex have joint projects together: in 2012, the bank bought 75% shares of Yandex Money payment service. This spring, the partners closed a deal to create a joint company in the online retail segment, which was immediately compared to Russia’s Amazon. But recently, a serious competitor emerged – Mail.Ru’s Alisher Usmanov announced his plans to become Russia’s leading player in online retail in partnership with China’s Alibaba and the Russian Direct Investment Fund.

Sberbank has already played the role of white knight to Yandex. The golden share which gave the right to veto ownership changes was thought up by Yandex in 2009, when Usmanov was considering potentially buying a large stake in a search engine. Then, the government discussed the possibility of creating a “national search engine” and purchasing up to 10% stakes in all strategic companies. When Yandex gave Sberbank a golden share on the eve of Yandex’s IPO, this was also a type of guarantee to the government that the company will not fall into foreign control. Sberbank then seemed in the eyes of Yandex’s founders to be both big and neutral enough, Forbes wrote.

Irina Malkova, Peter Mironenko

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