In a move that could have far-reaching strategic implications, Mail.ru Group and Sberbank – two giants of the Russian Internet listed on Western exchanges – yesterday announced a joint venture project to develop ride-hailing and food delivery activities.
This is the first-ever cooperation of that type between these two companies, the Mail.ru Group press service told East-West Digital News.
The joint venture “may be valued at more than 100 billion rubles” (around $1.5 billion), “operating in markets worth more than 1 trillion rubles combined over the next three years,” the companies stated.
The partners will hold equal stakes (50%) in the JV, in which they see a future market leader “with the potential for an IPO in the next few years.”
The deal is still pending approval from corporate governance bodies, anti-monopoly authorities and other regulators. The parties expect to sign a legally binding agreement in late 2019, after approvals are received.
$1 billion capital injections
The JV will aim to create “a leading O2O (online-to-offline) platform” based in Mail.ru Group’s existing subsidiaries Delivery Club and Citymobil, on the one hand, and Sberbank’s Foodplex, on the other.
DeliveryClub, a leading food delivery service, was acquired by Mail.ru Group in late 2016 for $100 million. Citymobil, a smaller player in the ride-hailing market, has been partially owned by Mail.ru Group since April 2018. Foodplex, in which Sberbank owns a 35% stake, is a food service platform launched in October 2018.
The terms of the planned deal have been dislosed as follows:
- Mail.ru Group and Sberbank plan to invest up to 64 billion ($1 billion at the current exchange rate) in the JV, subject to certain KPIs.
- Mail.ru Group will contribute to the new company its stakes in Delivery Club (100%) and Citymobil (22.69%), the related minority investment and options it holds in other firms from these industries, as well as 7.7 billion rubles.
- An additional investment of up to 5.1 billion rubles may be added to the capital of the JV subject to certain KPIs.
- Prior to deal closing, Mail.ru Group will ensure that a stake of no less than 75% in Citymobil is accumulated by the JV.
- Sberbank will contribute its share in Foodplex (35%) and approximately 38 billion rubles in cash to the JV.
Thus, “Sberbank’s overall contribution may increase by an additional 13 billion if Delivery Club and Citymobil achieve a number of KPIs over the next 12 months,” which means that “the JV will receive 45.5 billion at the conclusion of the deal and an additional investment of up to 18 billion over the following 12-month period after closing if KPIs are achieved.” This is how the JV’s post money valuation could exceed 100 billion ($1.5 billion), Mail.ru Group and Sberbank explain.
The JV may be open to new investors in the future “to facilitate the further development of the platform.”
Alliance U-turn or diversified strategy?
Yesterday’s announcement could be the beginning of a U-turn in Sberbank’s alliance strategy in the field of e-commerce and digital services. Just two years ago, in August 2017, Sberbank announced an alliance with Yandex, Mail.ru Group’s archrival on the Russian Internet scene, to create a “leading e-commerce ecosystem” in Russia.
Sberbank injected $500 million in the JV, christened ‘Yandex.Market Group of Companies,’ which now runs two marketplaces and a price comparison engine (see EWDN’s latest e-commerce report).
The announcement of Sberbank’s joint project with Mail.ru Group “equals an informal declaration of war” with Yandex, a industry insider told TheBell, an influential online publication. Taxi services and food delivery are the fastest-growing assets and the main source of revenues outside advertising for Yandex, the source explained.
Citymobil, which is still behind Yandex.Taxi in terms of market shares, will have an access to Sberbank’s virtually unlimited financing capacities. This is no good news for Yandex.Taxi, the joint venture created in 2018 by Yandex and Uber, which considers an IPO in the relatively short term.
Less than two weeks ago, Yandex.Taxi announced a new acquisition to maintain leadership; but Mail.ru Group immediately claimed a veto right on the transaction, which involved a company in which it had previously invested.
Meanwhile, insisting rumors put at doubt the robustness of the Yandex-Sberbank e-commerce joint venture. Sberbank would be disappointed by the commercial performance of the Yandex.Market Group of Companies. The two partners are said to have diverging views on a range of issues, and to be discussing a potential divorce. Another rumor says that Sberbank is eyeing Ozon as a potential acquisition target as an alternative to its alliance with Yandex.
Two weeks ago, Sberbank’s first deputy CEO categorically denied any dissatisfaction or divergence of views with Yandex. Sberbank’s CEO German Gref also dismissed the rumors of a clash with Yandex, but did not rule out that the two company could compete “for some projects” as well.
While Yandex declined to comment on the latest move from its ally Sberbank and rival Mail.ru Group, an unnamed source in the company shared his feelings with TheBell.
“Yandex is used to competing with international companies with huge resource, as well as with state companies that enjoy unlimited access to state and people’s money,” he said, referring to Google and, apparently, to Sberbank. “Yandex feels comfortable in such competitive field since it relies on a huge intellectual potential, both from the company and from the country in general.”
An industry insider shared with East-West Digital News a different view on the matter. Sberbank’s decision to do business with Mail.ru Group is more a reflection of a diversification strategy than an implicit attack on Yandex.
“The results of the first year of activity the Yandex-Sberbank e-commerce joint venture are not negative, and it is very premature to burry it,” this insider said. “Sberbank doesn’t feel it is bound by exclusive ties with Yandex; it wants to realize its big digital ambitions in various ways and with various partners.”
On the NASDAQ, the Yandex stock price fell yesterday from around $40 before the announcement of the Sberbank-Mail.ru Group JV to around $38.5%.
Since Sept. 2015, however, Yandex’s shareholders have seen the share price grow from less than $12 to the current levels.
