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17 July 2017

Big Deal: Yandex Taxi catches an Uber

Uber's operations in four Eastern European countries will merge with Yandex Taxi in a deal that could signify it plans to take a less direct, CVC-influenced approach to some markets.

Author: Robert Lavine, News Editor

US-based on-demand ride platform Uber agreed last week to merge its operations in four Eastern European countries with Yandex Taxi, a ride hailing subsidiary of Russia-based internet company Yandex, the second such deal it has struck in the past year.

Services covering Uber and Uber Eat, the company’s meal delivery offshoot, in 21 cities spanning Russia, Azerbaijan, Belarus and Kazakhstan, will join with Yandex Taxi operations to form a company that is present in 127 cities including markets in Armenia and Georgia.

Uber will invest $225m in the not-yet-named entity, in which it will own a 36.6% share, while Yandex Taxi will provide $100m and will hold a 59.3% stake. Employees of the company will own the other 4.1% of the company, which is valued at $3.73bn, and which will also make use of Yandex’s mapping resources.

The transaction follows the $7bn acquisition of Uber China by Didi Chuxing, the leader in China’s ride hailing market, in August 2016. Didi Chuxing paid for Uber China with a combination of stock and a $1bn equity investment in Uber, and the deal gave Uber and the rest of the spinout’s investors a 20% share in a company that was henceforth free to dominate the sector in China.

While the cash Uber was putting into its Eastern European operations did not approach the investment it applied to China (or is currently deploying in India), it was competing against Yandex Taxi from a position of relative weakness as a newcomer.

Yandex Taxi was reportedly also finding it hard. The platform was founded in 2011 and had been making a small operating profit until early 2016 when it began racking up losses in a bid to expand rapidly, and a cessation of hostilities in the region will give the newly merged company the relative freedom to grow at a more sustainable rate.

Uber, it is worth mentioning, has been going through its own issues of late, mainly centring on a corporate culture increasingly regarded as sexist and overly aggressive, leading to founder Travis Kalanick stepping down as chief executive last month, and streamlining its approach geographically could be seen as a way of strategically focusing its resources.

Although China and Russia are now resolved, Uber faces stiff competition in Southeast Asia, where Grab is reportedly in the process of raising $2bn; in India, where Ola is raising $100m; in Latin America, where 99 and Cabify have both received substantial amounts of equity funding; and in its home country, where Lyft secured $600m in an April 2017 series G round.

Uber is of course the best funded of all those companies, but it also has the largest reach, which means its focus is by necessity also spread more thinly. Perhaps more importantly, its competitors have common backers.

Didi Chuxing is an investor in Grab, 99, Ola and Lyft, while SoftBank owns shares in all but Lyft, though it will shortly take a Lyft stake through its forthcoming acquisition of Fortress Investment Group.

Yandex Taxi is outside that grouping, but Uber must be aware that it is competing in what is increasingly beginning to look, by proxy, like a two-horse race with SoftBank, and that of course complicates the prospect of more deals similar to those with Didi Chuxing and Yandex.

However, each of those deals gives Uber more room to manoeuvre, and although its interest in those markets may remain dormant for a while, it would always have the opportunity to swoop back in for a takeover in future should circumstances change. Perhaps in the long run, SoftBank’s model may prove a handier way for Uber to navigate certain some of its international markets.

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