Yandex - Strengthens Regional Position

Yandex.Taxi has acquired taxi aggregator Vezet's call centers and cargo business. The deal is for up to $178 mln in cash, a significant part of which will depend on the stages of integration. We welcome the deal and consider it to be complementary, as it strengthens Yandex.Taxi's position in regions outside Moscow, which have become the main competitive battleground. We believe the potential synergies should exceed the investment incurred, rendering the deal value-accretive. We reiterate our BUY rating on Yandex and our target price of R5,075 per share, or $65.90 per US-listed share.> Narrower scope and revised financial terms. A previous deal announced in July 2019 was not approved by the FAS and hence broke down. What has changed now? First, the company is buying the call centers and the cargo business, not the app or IP. Vezet customers will still be able to order services by phone as well as through the Yandex Go app. Second, since the scope of the deal has been cut and given Vezet's rides are in a downtrend (we estimate a 20-30% y-o-y decline), the price has been cut to "up to $178 mln in cash, a significant part of which will be contingent on certain integration milestones" (from "up to 3.6% of the issued share capital of Yandex.Taxi JV at deal closing, together with up to $71.5 mln in cash, subject to KPIs"). The deal is now below the threshold requiring FAS approval.> Good deal, should be complementary. We believe the deal will help to strengthen Yandex.Taxi's positions in smaller cities (with a 500k population or less) where ordering taxis over the phone is especially popular. Vezet is very advanced on this front, as its call processing takes an average of 20 seconds, one of the fastest rates in the industry, according to Yandex. We also believe that the deal is quite timely, as the core competitive battleground for the taxi industry is in the regions, and as new players (such as Didi) could be about to enter the fray. We are pleased that Yandex will not have to overpay for the app under the amended deal terms.> Deal adds value. We regard the deal as value-accretive, as the deal size of "up to $178 bln" is less than 2% of our fair value for Yandex's ride hailing business, while we think synergies in the regions outside Moscow (which we estimate account for 60-65% of total ride-hailing GMV) could be considerable.