The effect of takeover talks with Sberbank on Yandex business and stock
Russia’s largest bank, state owned Sberbank, was reportedly negotiating about acquiring control in the Russian largest internet company Yandex. As a defense from a possible takeover, Yandex now considers a reorganization of its voting shares structure. We’d like to review the situation in terms of Yandex’ stock outlook.
1. The news on negotiations with Sberbank dropped Yandex shares by 30%, and they haven’t recovered fully yet. Why did the market react so negatively? Which negative/positive effects a potential takeover may have on Yandex’s business? How might it affect other Russian tech stocks (eg. Mail.Ru Group)?
2. Two weeks later, Yandex announced a major reorganization of its voting stock which is viewed as defense against a takeover (https://www.kommersant.ru/doc/3786372). The company will issue a new class of shares that would hand 60% of voting control to a fund run by its CEO. Is it an efficient way to protect the company? How would this reshuffling affect class A shareholders (market investors)?
3. Given the aforementioned circumstances, what is your medium term outlook for Yandex stock and other Russian tech stocks, taking into account both fundamental and news-driven factors?
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Well done work
Excellent analytical report like first-class IB
The main takeover risk and protection mechanisms are well described
Good market analysis and comparison with competitors
• Yandex considers defense tools to save independence and reduce business risks as well as enhance EPS in the medium term in the case of entering into the deal with Sberbank, which is beneficial to investors.
• The company has a stable financial position with a quite conservative low-risk financing policy.
• Performance results are positive and close to the main global peers’ average indices.
• Stable and highest percentage R&D relatively revenue among global peers.
• Possesses diversified portfolio of projects.
• Operates on a fast-growing e-commerce market and has high chances for leadership in the short term.
• Among peers, Google and Alibaba have the same financial policy, revenue generating model (CPC), and operations. Alibaba outperforms Yandex by financial results and scale of business. Performance of Yandex and Google is mostly similar with slightly better results of Google. Yandex outperforms both companies with percentage of R&D relatively revenue.
• Mail.ru has the same financial policy, revenue generating model (CPC), and operations but significantly underperforms, has negative earnings in 2018, and almost no R&D. Stocks are trading with a premium.
• Yandex’ stock price is mostly driven by the global tech market and is currently trading with discount.