As Uber continues to work through a huge amount of internal management turmoil, the company is also consolidating and rationalizing more of its international business. Today, the company announced that it will be combining its rides-on-demand business and UberEATS, its food ordering and delivery business, in Russia and neighboring markets, with Yandex.Taxi, the ridesharing business built up by the Russian search giant over several years and the current leader in the market, in what will be a separate, joint venture valued at $3.72 billion.
The deal — which will cover operations in Russia, Kazakhstan, Azerbaijan, Armenia, Belarus and Georgia — is expected to close in Q4 of this year and has already been approved by the boards of both companies. It’s a substantial operation. Currently it covers 35 million trips each month across 127 cities, with the bulk of those coming from the Yandex.Taxi part of the JV; Uber was only in 21 cities.
“This combination greatly enhances Yandex’s ability to offer better quality service to our riders and drivers, to quickly expand our services to new regions, and to build a sustainable business,” says Tigran Khudaverdyan, CEO of Yandex.Taxi, in a statement. “The combined companies currently perform over 35 million rides a month while growing over 400% year-over-year. Since founding Yandex.Taxi in 2011, we have connected tens of millions of riders and drivers to become the largest and most trusted ridesharing business in Russia and neighboring countries. We are excited to expand on this foundation in collaboration with Uber.” Khudaverdyan will become the CEO of the combined company.
The companies are also each putting money into the deal: Uber is putting in $225 million and Yandex $100 million, giving Yandex a 59.3 share and Uber a 36.6 percent share, with 4.1 percent owned by employees of the company, on a fully diluted basis.
Today, in the conference call, the companies said that one strong option will be for the new business to eventually go public: Yandex is publicly traded, while Uber remains private.
This is a huge move and follows Uber bundling its international business in China last year, where it sold its Uber China operation to Didi, ending several years of bitter and very expensive competition.
The same can be said for the Russian market, where Yandex has been the market leader but has been in fierce competition to hold on to that position, with Uber equally spending big — as it has done in other markets — to stay in the game and dominate.
Given changes in the business at home — namely CEO Travis Kalanick resigning amid a host of scandals involving sexual harassment and other bad management practices — the company appears to be having a wider thinking of its overall strategy.
Some have already started to question whether the company can live up to its $68 billion valuation in the wake of all of its problems, and in the meantime, a number of regional rivals continue to raise funding in a bid to position themselves as credible alternatives in a rapidly evolving market for mass transportation.
Uber says that it has to date invested about $170 million to build and expand its business, which is now active in 21 cities in the region.
“Not only is this partnership good news for our two companies, it’s also great for riders, drivers and cities across the region. This deal is a testament to our exceptional growth in the region and helps Uber continue to build a sustainable global business,” says Pierre-Dimitri Gore-Coty, Head of Uber in Europe, the Middle East and Africa.
It’s been noted many times before that Uber’s strength is not just in terms of providing cheap rides but in how it has been building a large and powerful logistics business. That in effect means that the company has to invest great amounts not just in customer acquisition and marketing, but tech R&D. In markets where it is still a smaller player, that can prove to be costly.
Yandex is at an advantage because it already had an extensive maps service — like its U.S. counterpart, Google — and it will be contributing that IP to this operation.
“NewCo will draw on the strengths of Yandex, the search, maps and navigation leader in the region, and Uber, the global ridesharing leader, to develop a fast-growing, sustainable business that best serves the needs of riders, drivers and cities,” Yandex said in a statement.
After the closing of the transaction, consumers will be able to use both Yandex and Uber apps while the driver-side apps will be integrated. This will give the whole service a much larger pool of drivers (presuming there wasn’t already a lot of overlap), as well as passengers. There are more details of how the companies compare now in the presentation below: