Financial Times: Hopes of a ‘Russian Amazon’ hit by corporate rift

Yesterday the Financial Times published a long article analyzing the relationship between the Russian financial behemoth Sberbank and leading tech company Yandex.

Following insisting rumors and recent market news, the British business daily puts at doubt the robustness of the e-commerce joint venture between the two companies.  

“When the Russian banking giant Sberbank launched a $1bn online shopping joint venture with Yandex, Herman Gref, the bank’s chief executive described it as a ‘Russian Amazon’ that would dominate the market. But less than a year later, relations between the partners have deteriorated and Sberbank is pouring money into a joint venture with Yandex’s arch rival, Mail.ru, that will directly target Yandex’s fastest growing business, ride-hailing,” writes Moscow FT correspondent Max Seldon.

The two partners have diverging views on a range of issues, including the goals, the management and even the performance metrics of their joint venture. “There’s no lubricant there. They fight like cats and dogs,” one of FT’s sources said.

The conflicts seems to have even deeper roots. “The relationship is said to have soured last year when Yandex rebuffed an attempt by Sberbank to buy control of the company, a move that sent its share price tumbling and drew a promise from Arkady Volozh, Yandex’s founder, that he would not sell his shares,” the newspaper writes.

“As one of the few big Russian companies built without cheap loans from state banks or cozy privatisation deals, Yandex is resistant to outside interference and has frequently clashed with [Sberbank’s deputy CEO] Lev Khasis,” according to the FT’s sources.

“The main problem with Sberbank is that they don’t know how to collaborate in an equal, mutually beneficial way. They always try to hog the blanket for themselves,” a person close to Yandex told FT.

Political and personal background

The tensions could have a political background, too. “The Kremlin is worried that the NASDAQ-listed Yandex could eventually slide out of Russian control, especially if Mr Volozh, 55, sells down his stake. If he did, his privileged shares would revert to ordinary shares, possibly giving foreign investors more influence.”

FT justly notes that Yandex is directly concerned by a bill just introduced to parliament by a pro-Kremlin MP  that would ban foreign shareholders from holding more than 20% of “significant” Internet projects.

Personal factors are said to aggravate the situation. “Sberbank struggled with Mr Volozh’s recent decision to restructure its executive structure while he spends much of his time in Israel,” reports the financial daily, referring to “a person close to the bank.”

“Arkady basically lives in Israel and isn’t running [Yandex] day-to-day. It’s unclear who has what responsibility,” claims this person.

The disagreements between Sberbank and Yandex seem so deep that the two companies have started discussions about potentially ending their partnership, FT heard from unnamed sources. Just one company – probably Yandex – could eventually own the existing joint venture (currently known as the Yandex Market Group of Companies).

Sberbank denied any threat to its partnership with Yandex. “Sberbank and Yandex have no disagreements over strategy or tactics for developing Yandex Market. The company is growing rapidly, we are happy with its progress and will do everything in our power to make it even more successful than it is now,” the company told FT.

Khasis said the bank’s new partnership with Mail.ru Group in the ride-failing business does not represent a conflict of interest with the e-commerce JV with Yandex.

But Greg Abovsky, Yandex’s chief operating officer told FT that Sberbank and Yandex had discussed “changing certain parts of the agreements” while remaining in the joint venture. 

He added that Gref may have to recuse himself from some parts of board meetings. “I think there’s some question over how sustainable that is in the long term,” FT quoted Abovsky as saying.