July 25, 2019, 09:00 / Updated July 25, 2019, 23:12 / Business

Sberbank will create a joint venture with Mail.ru Group

It will include Citymobil and Delivery Club Natalya Ishchenko Ksenia Boletskaya

Evgeny Razumny / Vedomosti

The companies announced the planned transaction on July 25. So far, an agreement of intent has been signed. A binding agreement is planned for autumn 2019, after permissions are received from corporate governance bodies, antimonopoly authorities, etc.

What will happen in the new company

The joint venture should become “the leading Russian platform” for services in the field of food and transport, its future participants reported. Mail.ru Group (MRG) and Sberbank will each have 50% in it. They plan to invest up to 64 billion rubles if the company reaches its target indicators within 12 months after the transaction. Under the same condition, the value of the new company, according to estimates of its future participants, may exceed 100 billion rubles.

MRG will contribute cash, 100% of the food delivery service Delivery Club and 22.69% of the Citymobil taxi ordering service to the new company (later the company has committed to ensure the consolidation of at least 75% of this service into the joint venture). MRG will also contribute to the JV related minority investments and options in other companies in these industries. Among MRG investments that fit this description, for example, is the food delivery service Instamart. First Deputy Chairman of Sberbank and co-investor of Instamart Lev Khasis said that this possibility is being discussed, but there are no agreements. An Instamart representative declined to comment.

Sberbank will contribute 35% in the Foodplex service and about 38 billion rubles to the joint venture. So, in fact, Alexander Mamut’s Rambler Group will become another partner of MRG; together with it, Sberbank established Foodplex in 2018. This service combines the Plazius digital marketing and payment system, the Afisha Restaurants booking service, the Smart Reserve system for table reservations and hostess work, as well as the developer of the restaurant automation system UCS. Now Rambler owns 30% in this joint venture, another 35% belongs to GHP Partners, as well as UCS founders Grigory Gurevich and Evgeny Malakhov. Another 13 billion rubles. the bank can contribute if the Delivery Club and Citymobil services achieve a number of target indicators over 12 months.

If the deal between MRG and Sberbank goes through, Delivery Club is expected to be able to expand the number of cities where it operates, and Citymobil will be able to accelerate regional expansion and strengthen its position in the Moscow market.

MRG and Sberbank believe that the new company has “the potential to enter an IPO in a few years.”

Deal by deal

MRG is currently in the process of another major deal - it is creating a joint venture with Alibaba Group, the Russian Direct Investment Fund (RDIF) and Megafon in the field of online trading. It will combine Russia's largest platform for online shopping abroad, AliExpress, with MRG's strong positions in digital business and social networks. MRG's assets include VKontakte, Odnoklassniki, etc. The shareholder agreement will also stipulate that AliExpress Russia and MRG will enter into a strategic cooperation agreement, among other things, it will concern “traffic and product initiatives.”

A source close to one of the participants in the Sberbank-MRG deal says that in the future it is possible that a Chinese Internet company will participate in their joint venture. The message from Sberbank and MRG said that “in the future, the parties will consider the possibility of attracting external investors to further develop the platform’s business.” An Alibaba spokesman had no comment.

In 2016, Sberbank also conducted negotiations on a joint venture with Alibaba in Russia, but then it was not possible to agree on a partnership with the Chinese company. “In any partnership with Alibaba, we would not receive control over the technology; it would not belong to a Russian legal entity. We couldn't agree on this. We would not be able to manage the entire data package,” explained bank president German Gref at the end of 2018.

What preceded the deal

MRG began looking for partners in the fall of 2018. Then the group announced that it wanted to create a new platform that would combine online and offline commerce and service channels. MRG said that first of all we are talking about food delivery services and advertisements, although it is not limited to them. The company did not mention taxis. Citymobil actively grew on its own, by the end of 2018 it became second in the Moscow market after the combined Yandex.Taxi and Uber, but its share outside the capital is insignificant. But MRG had an investment in a large regional player in the taxi market - Vezet Group of Companies - in the form of a convertible loan.

However, on July 15, 2019, Yandex announced that it would buy the assets of Vezet Group of Companies. If the deal is closed, then Yandex will sharply increase its presence in the regions, and MRG will lose the opportunity to gain a share in a large regional service.

Citymobil is a relatively small player compared to Yandex.Taxi, VTB Capital analysts note. At the end of 2018, Citymobil had about 3.9 million trips per month, i.e. about 130,000 per day, according to MRG. And Yandex.Taxi, according to VTB Capital, has more than 3 million trips per day in the first quarter of 2019. The purchase of Vezet assets will add another 1 million trips per day. Delivery Club, according to VTB Capital, is still ahead of Yandex.Food, but this gap is narrowing.

Who is friendship against?

The joint venture between Sberbank and MRG will primarily compete with Yandex, stated VTB Capital analysts. A source close to one of the participants in the deal between Sberbank and MRG says that their alliance involves the creation of a strong competitor to Yandex services, so it is possible that the future platform may also include a car sharing project. In June 2019, New Urban Environment and Transport Infrastructure LLC (70% from MRG) signed an agreement with VEB-Leasing and Nissan to develop car sharing. The service has not yet been launched. The largest players in this market now are Yandex.Drive and Delimobil.

An MRG representative said he did not comment on the specific details of the agreement: “But, according to our plans, the joint venture will be the only point of development of projects in the field of food technology and mobility for both parties.”

How the relationship developed

Sberbank is a long-time partner of Yandex. 10 years ago, the state bank bought a “golden share” of an Internet company for 1 euro and received the right to block transactions with large blocks of its shares. Gref joined the board of directors of Yandex in 2014 as a non-executive director. The companies have a joint venture in the field of online trading - Yandex.Market. Sberbank owns 75% of Yandex.Money.

Both the state bank and Yandex publicly stated yesterday that they hope for further cooperation. When asked about a possible conflict of interest due to Gref’s participation on the board of directors of Yandex, Khasis recalled that both companies had competing projects before the deal with MRG. “I think Gref’s participation brings quite a lot of benefits to Yandex. <...> And, apparently, the benefits of Gref’s participation on the board of directors outweighed what you are talking about [possible risks of conflict of interest],” Khasis noted. Managing Director of the Yandex Group of Companies Tigran Khudaverdyan said that the company is accustomed to working “in competition with global and local players.”

But the relationship between Yandex and Sberbank is now not what it used to be, according to Renaissance Capital analysts. If MRG currently has Sberbank, Gazprombank , RDIF, Alibaba, Tencent, and Naspers among its partners in various projects, Yandex “seems to lack [financial] support in the right places,” analysts noted. “With an entirely foreign institutional investor base, Yandex's minority shareholders could be vulnerable if such an organizational structure attracts more critical government attention,” they warned.

The deal between MRG and Sberbank is another indicator that the state bank’s cooperation with Yandex in terms of joint businesses may be limited to existing projects, according to VTB Capital analysts.