Uber to merge with Russia's Yandex in a $3.7bn deal
Looks like Uber has given in to the competition with Yandex.Taxi in Russia. The usually "aggressive" American ride-hailing firm is going to merge its business with its competitor not only in Russia but also five other countries in the region. The rivals will merge to form a new, yet-to-be-named $3.7bn company. The deal marks Uber's exit from yet another major market.
Yandex, an established brand in Eastern Europe
Uber launched in Russia in 2014 whereas local firm Yandex started its taxi business in 2011. It faced stern competition from the established local company, which has much bigger presence. The Russian MNC, established in 1997, also operates the Russian search engine and is nicknamed "Google of Russia". According to the investors' data, Yandex is twice the size of Uber.
A deal makes the most sense, say both the players
Both the companies said that a deal is better than spending millions to fight against each other for market share. Yandex will spend $100mn and own a roughly 59% stake in the combined entity while Uber will invest $225mn and have a 37% stake. The new company will operate in 127 cities across Russia, Azerbaijan, Armenia, Belarus, Georgia, and Kazakhstan.
Merger deal expected to close in fourth quarter
Yandex and Uber will jointly operate the combined entity, which will have Yandex.Taxi's Tigran Khudaverdyan as the CEO. Both the companies' apps would be active for riders but drivers will use an integrated app. UberEats will also be part of the new company; the deal is expected to close by 2017-end. The deal is similar to Uber's agreement with China's Didi Chuxing.
Is Uber recalibrating its global expansion strategy?
After losing $2bn in China, Uber merged its business with rival Didi Chuxing in a $35bn deal last year. In Apr'17, Uber withdrew from Denmark as tougher taxi laws were imposed. Uber's EMEA Head, Pierre-Dimitri Gore-Coty, said the Russian merger deal wouldn't affect their operations in other countries. However, all eyes are now on Uber's business in India, its single largest market outside US.
Can Uber lose Indian business to a local rival?
In India, Uber is facing a tough fight from Ola, which urged the government to favor local players. However, Uber is unlikely to lose India as experts say it still has an immense opportunity to expand. They say both Uber (in 29 cities) and Ola (in 100 cities) are desperately trying to woo riders, but Ola is ahead in the game.
Is Uber's aggressive approach backfiring?
The merger announcement comes as Uber continues to face internal management turmoil and tremendous pressure from investors. Uber's aggressive business approach helped it expand to over 70 countries, reaching a $70bn valuation. However, that approach seems to have begun to backfire given the changes in its business, including CEO Travis Kalanick's resignation amid a series of scandals involving sexual harassment and corporate misbehavior.
Current deal reflects the challenges facing Uber
The various scandals that led to the resignation of Kalanick and 20 other executives have affected Uber's business at home as riders didn't want to associate with Uber. Meanwhile, its regional rivals continue to position themselves as better alternatives. It remains to be seen whether Uber passes the tough test and live up to its valuation in the aftermath of all the problems.
