Russia tightens grip on internet as Yandex sells assets to state-run VK

By Alexander Marrow

MOSCOW (Reuters) - The Russian government tightened its grip on the internet on Tuesday, as a state-controlled company with close links to President Vladimir Putin agreed to buy the news feed and homepage of the country's most popular website.

Yandex (NASDAQ:YNDX), often referred to as Russia's Google (NASDAQ:GOOGL), said it was selling its news aggregator, content platform Zen and yandex.ru homepage to VK to focus on other business areas, such as food delivery and ride-hailing.

In exchange, Yandex will acquire food delivery company Delivery Club from VK. Values for the assets were not disclosed.

VK runs Russia's largest social network, VKontakte, and an overhaul last year saw state-controlled gas exporter Gazprom (MCX:GAZP) and banker Yuri Kovalchuk, whom Putin has publicly called a personal friend, assume greater control over the company.

Vladimir Kiriyenko, the son of Putin's first deputy chief of staff Sergei Kiriyenko, is its CEO.

Russia's years-long suppression of independent media intensified after Moscow sent troops into Ukraine on Feb. 24. It passed a law banning what it calls "false information" about the armed forces and quashing many organisations' ability to broadcast freely.

It has blocked access to some foreign platforms, including Meta Platforms' Facebook (NASDAQ:META) and Instagram.

"The board and management of Yandex have concluded that the interests of the company's stakeholders ... are best served by pursuing the strategic exit from its media businesses and shifting to a focus on other technologies and services," Yandex said in a statement.

Yandex has, like many Russian companies, had a turbulent few months. It plunged to a first-quarter loss and its shares tumbled to six-year lows before trading was suspended in late February. Revenues and profits recovered in the second quarter, and while its Nasdaq-listed shares remain suspended, trading in its Moscow shares resumed after about a month.

'BUYING OUR FREEDOM'

Yandex has in recent years complied with Moscow's demands, under threat of fines, over which publications' stories can feature on its news aggregator, drawing criticism from free-speech advocates.

Moscow has not blocked access to most foreign-language media, which remain freely available in Russia and on Yandex, but search results do restrict access to any sites that communications regulator Roskomnadzor has banned, many of which are Russian-language independent media.

In February, Yandex started warning Russian users seeking information about events in Ukraine of unreliable information online.

A former head of Yandex News, Lev Gershenzon, on March 1 described Yandex as a key element in hiding information about the conflict in Ukraine. Yandex has denied being complicit in censorship.

"We are buying our freedom," a source close to Yandex said. "This business had been such a weight on our feet.

"This will enable us to do our business significantly depoliticised, practically completely depoliticised."

ONLINE SEARCH

Yandex dominates Russia's online search market with a share of around 62%, according to its analytics tool Yandex Radar. Google accounts for about 36%, with VK's mail.ru at less than 1%.

That stronghold over the online search market will likely continue.

Yandex.ru displays a bundle of news stories below its search bar, followed by a rolling stream of content. The company's entry point for search will now become ya.ru, a site that resembles Google's homepage and is already popular with those who prefer uncluttered searches.

Yandex.ru, its News feed and Zen, will be renamed dzen.ru, Yandex said, with VK to take over development and control over "content, look and feel".

The asset swaps require anti-monopoly approval and are expected to close in the coming months, Yandex said.

E-COMMERCE SHAKE-UP

Search, advertising and ride-hailing are among Yandex's strongest revenue-generating businesses, but it has several other units, such as cloud services and self-driving cars. It is expanding services in Africa and Latin America, but pulling back from e-grocery in Europe.

The terms of the deal look broadly neutral, said BCS Express in a note. The profitable Zen and News divisions are positive for VK, while Yandex strengthens its position in foodtech with the likely loss-making Delivery Club, analysts said.

Yandex's Moscow-listed shares rose 2.7%, while VK's depositary receipts were up 2.9%, both outperforming the wider market.

Dmitry Masyuk, head of Yandex's foodtech division, said Delivery Club would improve speed and choice on its food delivery offering. Yandex estimated the size of the market at 650 billion roubles ($11 billion) in 2021 and sees annual growth of 20%, he said.

($1 = 59.7500 roubles)