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Yandex goes Dutch In an effort to divest itself of its Russian segment, the multinational IT giant is looking to create a ‘consortium’ of oligarch shareholders, while distancing from the Kremlin

Source: Meduza

The IT giant Yandex describes itself as a “technology company that builds intelligent products and services powered by machine learning.” Now undergoing a reorganization, the multinational company is looking to divest itself of the troublesome Russian assets that have become a liability for the family trust established by Yandex founder Arkady Volozh. But restructuring Yandex is proving to be a complex task with many stakeholders to make happy, including some of Russia’s richest men who remain closely connected to Vladimir Putin. In this collaborative reportage, Svetlana Reiter, Irina Malkova, and Valeria Pozychanyuk report from behind the scenes of an incipient deal where Russia’s “old” oligarch money prepares to back new technologies like AI and big-data processing.

The new deal

The next few weeks may determine the new ownership structure of Yandex, an originally Russian IT company that has morphed, over its three decades in existence, into a multinational Internet services giant. Five different speakers familiar with the restructuring deal and the way it’s shaping up at present told Meduza and The Bell about the negotiations now underway.

Yandex founder Arkady Volozh decided not to come back to Russia after Vladimir Putin’s regime launched the full-scale invasion of Ukraine last year. Volozh resolved to divide the company, withdrawing from the domestic market and retaining control of the Netherlands-based Yandex N.V. and its international products, including robotics and cloud services. Once the company’s assets are divided and reorganized, a new Russian entity will be incorporated. Since late 2022, Volozh has been on the lookout for potential buyers for the new subsidiary that would succeed Yandex on the Russian market.

According to informed sources, several months ago Yandex approached a number of Russia’s richest business tycoons about majority share acquisition, inviting their bids. At this point in the process, the objective is to determine the sale price that would satisfy all the parties, including the Russian government that has introduced severe regulatory measures against investors leaving the Russian market. (The former majority shareholder of Yandex N.V. is the Volozh family trust.)

In December 2022, the federal government decreed that foreign investors disposing of Russian equity can only do so at a discount of no less than 50 percent of its market price. In addition, in April 2023, Russia’s Finance Minister Anton Siluanov promised to tax every such sale at a 10-percent rate.

Yandex’s capitalization was $30 billion at its peak, but just before the war it had shrunk to $17 billion. The sale price of the “new Yandex” might be around $7.6 billion.

The buyer shortlist

According to the insiders who spoke with Meduza and The Bell, about a dozen prospective buyers have responded to the invitation to submit bids for the Russian Yandex subsidiary. The shortlist of potential buyers includes Lukoil President and CEO Vagit Alekperov, Severstal chairman Alexey Mordashov, and possibly the Novatek CEO and chairman Leonid Mikhelson.

Interros chairman Vladimir Potanin also figures on the shortlist. Despite his current difficulties because of the U.S. freeze on his assets, several sources believe him to be a very likely member of the consortium that will eventually buy the Russian Yandex.

Another likely prospective buyer is Roman Abramovich. A personal acquaintance of the billionaire suggests that Abramovich had been interested in the Yandex buyout, but had initially hoped to acquire its foreign operations as part of the deal. When Volozh determined to divide the company and only divest himself of the Russian assets, Abramovich apparently abandoned the idea. “He called investing in the Russian Yandex a ticket to the war,” says his acquaintance.

According to another source, Abramovich, his partners, and the VTB bank (minority shareholders in Yandex since 2020, when Yandex disentangled itself from joint ventures with Sberbank) are still interested in the prospective deal. A representative of Roman Abramovich nevertheless denied that Abramovich or his companies were negotiating the acquisition.

The way the deal is projected at the moment, interested parties on the shortlist will all become major shareholders after the sale, which can nevertheless leave some room for investment funds. Members of Yandex’s top management are also expected to get minority shares in the company as members of the so-called “managers’ fund,” bruited to be the projected collective stand-in for Volozh and a major force in making key decisions at the new company.

The Kremlin’s role

One of the reasons why it took several months to line up the buyers for the Russian Yandex subsidiary is the involvement of Alexey Kudrin, former head of Russia’s Accounts Chamber and now corporate development adviser at Yandex. According to informed sources, it is Kudrin who is now trying to structure the deal and to get it approved by the government. In conversation with Meduza and The Bell, informed speakers told us that Kudrin attempted to discuss the purchase price and other details with each of the prospective buyers separately. “This isn’t the way to build a consortium,” said one of these insiders.

The Kremlin is taking an active part in the sale. It is, for instance, the Presidential Administration that appears to have nominated the Novatek CEO Leonid Mikhelson as a potential buyer. According to one of the speakers, Mikhelson himself didn’t exactly “burn with desire” to take part in the deal, but eventually agreed. The government, meanwhile, permitted Novatek to buy out Shell’s shares in the Sakhalin-II oil and gas development project, regulations notwithstanding.

Other people who got the invitation to invest in Yandex were the Novolipetsk metallurgy plant owner Vladimir Lisin and Vladimir Yevtushenkov, the majority owner of the AFK Sistema conglomerate. Both of them declined the offer.

Another party who has intermittently expressed interest in the Yandex deal is Putin’s longtime friend Yury Kovalchuk, as reported by two sources. Nevertheless, both sides of the provisionally divided Yandex have resisted letting Kovalchuk get involved in the company. According to informed speakers, the company is interested in diversifying its shareholders while taking a distance from the state, for the sake of protecting itself from international sanctions. Yet Kovalchuk, insiders believe, has not yet lost interest in the company.

The final shape of the deal is yet to be determined, and so is the distribution of shares among the would-be buyers. One possibility is that the new shareholders would control a total of 51 percent of the company shares, while the remaining 49 percent would remain with the Dutch Yandex N.V. corporation. According to two sources, this would lower the risk of international sanctions against the Russian company and appease the U.S.-based investment funds that are now Yandex’s minority shareholders.

Informed speakers believe that some of the potential investors would prefer it if the Dutch Yandex would divest itself of the Russian company entirely. Yandex N.V. has itself announced plans to leave the Russian market completely in due course.

The corporate board of Yandex N.V. will have to consider the deal’s proposed structure before recommending it to the shareholders. If the latter then vote in favor of it, the Dutch company will proceed with the formation of a new Russian subsidiary, which will inherit its Russian business as well as some of the projects now marketed abroad. Afterwards, the majority package of shares in the new company will be sold to the consortium of Russian investors. Yandex N.V. should also emerge from the deal with licenses to develop some of the existing Yandex product lines abroad.

The Yandex reorganization deal will likely close in the fall of 2023.