Yandex signs term sheet with VK to sell News and Zen

In further fallout from Russia’s invasion of Ukraine, Yandex, the company that’s sometimes referred to as the ‘Google of Russia,’ has signed a term sheet to sell its media division to VKontakte (VK), aka the local Facebook equivalent.

Yandex confirmed it has signed a term sheet to divest its news aggregator (News) and blogging/infotainment platform (Zen) with VK today. But it declined to provide further detail on the transaction that’s been agreed with VK, including financial terms.

In a statement the Russian Internet group, which is registered in the Netherlands for tax purposes, said its main Russian operating subsidiary, Yandex LLC, has reached an agreement in principle With VK Group on the sale of News and Zen.

“While the parties have come to an agreement in principle on a transaction, they are continuing to discuss technical and financial details, which will be announced in due course,” Yandex added, further noting that the transaction is subject to (and still pending) the approval of Russian’s antimonopoly regulator, FAS.

As well as needing regulatory approval for the sale to go ahead, Yandex’s investors will also need to agree to the deal terms.

The development confirms TechCrunch’s reporting last month: Our sources named VK as the leading contender to acquire Yandex’s media assets as the latter looked for an exit on rising risk in the wake of Russia’s invasion of Ukraine and the Kremlin’s tightening its grip on freedom of expression.

Shortly after reports of a potential sale of News and Zen began to circulate, Yandex told investors it was exploring strategic options for its media products — saying it was potentially looking to sell its News aggregator and blogging ‘infotainment’ recommender platform, Zen.

Last month the EU sanctioned a key Yandex executive, Tigran Khudaverdyan — citing accusations by a former head of its news operation over the role it plays in spreading Kremlin propaganda. It was quickly followed up by an announcement from Yandex that Khudaverdyan was stepping down as the deputy CEO and executive member of the board of Yandex NV, its Netherlands-based parent.

The latter is publicly traded on Nasdaq but trading of Yandex’s stock was halted at the end of February after it had shed more than half its value in five days.

While there’s no word on how much VK has agreed to pay to buy the two media products, the social media and services group reported issues with servicing its own debt last month — saying it may not have enough liquidity to pay its debt holders if most of them demand their redemption rights on a $400 million bond, citing uncertainty around the impact of sanctions on Russia. So it’s possible that the deal to acquire News and Zen is being done as an asset swap, rather than a cash transfer.

VK is known outside Russia for its eponymous Facebook-esque social networking platform but the company has expanded into many other tech-enabled lines of business including productivity, gaming, marketplaces, food delivery, transport, recruitment, payment processing and even its own hardware with a baked in AI assistant.

If the acquisition were to be an asset swap there are a number of options that might be attractive to Yandex, which also operates a number of areas beyond web search and ads — from e-commerce and video streaming to food delivery and ride hailing.

That said, Yandex is also dealing with a revenue crunch as sanctions aimed at Russia’s economy take their toll.

While the business itself has not been sanctioned, it is not insulated from the wider economic crisis hitting its home market and withdrew its 2022 financial guidance a week ago.

Reporting its Q1 earnings yesterday, Yandex revealed an adjusted net loss of 8.1 billion roubles ($110 million), via Reuters. Only five weeks of the quarter overlapped with Russia’s invasion of Ukraine, which means that Yandex’s Q2 earnings will show a fuller picture of how it’s being affected by what its earnings note dryly refers to as “geopolitical developments.”

Yandex’s Q1 loss stems from rising operating expenses — with the bulk coming from increases in payments to staff, per the earnings report. It said it paid this extra salary to all its employees (nearly 20,000 people) in the form of one-off support payments (costing a total of ~5,9 million roubles) to help staff deal with economic turmoil since the war began.

If the transaction to sell News and Zen goes through, Yandex’s media exit is likely to further shrink its revenue. Tech Crunch