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Iron Curtain Descends on Russia’s Top Internet Company

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After nine months of trying to maintain an awkward neutrality, Russia’s most successful tech company wants to take sides in the Ukraine war—both of them.

On Friday, Nasdaq-listed Yandex said it is reviewing options to restructure its ownership. It sketched out a split of the company into two parts, one acceptable in the U.S. and Europe and the other in Moscow. Although the move defies financial logic, Yandex in its current, globe-spanning form no longer works politically.

The division might happen through a sale of the core Russian business, plus associated operations in other emerging markets. Yandex is often called Russia’s Google, but it also has elements of

Uber,

Spotify and

Amazon.

Like

Alphabet,

it makes nice profits from a search and portal business and plows them into other bets. The most advanced of these is a ride-hailing service that has dominated the Russian market since a 2018 merger with Uber’s local operation.

A sale would leave just the most international of Yandex’s other bets in the company as currently incorporated. The four named Friday were driverless cars, cloud computing, education technology and data labeling. This portfolio wouldn’t be financially sustainable, though, as it is currently propped up by Yandex’s core operation. Most likely the four businesses would need to be sold or taken private in one way or another.

Yet a split would at least point a way forward for Yandex’s Western shareholders, most of whom haven’t been able to sell their shares since Nasdaq suspended trading on Feb. 28. They own most of the company, which also resembles Silicon Valley peers in its capital structure. Although founder

Arkady Volozh

retains 45% of Yandex’s voting shares, he only has 8.5% of the economic rights, leaving a large free float that isn’t currently free to float.

The big question for investors is what they might get for the core business, which would retain the Yandex brand. The company hit a peak market value of roughly $31 billion roughly a year ago, but all tech stocks have fallen dramatically since then. Yandex has a secondary listing in Moscow where its shares continue to trade at a valuation equivalent to about $11 billion.

Yandex’s financial results remain strong, helped by market-share gains after Google stopped selling advertising in Russia in March. Revenues rose 46% in the third quarter compared with the same period of last year, and profits were much better as the company put the brakes on some spending.

Still, investors can expect a large discount in what is essentially a forced sale process. Amsterdam-listed technology investor Prosus last month agreed to sell Avito, Russia’s top website for classified ads, for about $2.5 billion. Prosus is one of the few Western companies to have gotten out of Russia with any money at all, but analysts previously valued Avito at $6 billion.

Finding the right ownership and governance for the Russian part of Yandex will also involve a balancing act. Under

Vladimir Putin

‘s increasingly authoritarian regime, the company will need political cover, but it also can’t alienate its internationally-minded employees by aligning itself too closely with the Kremlin. This too could make it hard for shareholders to get a good price. They will get a vote on whatever deal emerges.

Yandex was previously a beacon of post-Soviet independence on Russia’s corporate scene, marrying a Silicon Valley approach to technology and capital with the Russian market opportunity. Its nascent plan to reinvent itself is worth watching—if only as a poignant farewell to a freer age.

Write to Stephen Wilmot at [email protected]

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