Shares of Russian Yandex soar on Tinkoff Bank merger

Shares of Russian Yandex soar on Tinkoff Bank merger
Yandex's shares fly on announcement of its purchase of Tinkoff Bank
By bne IntelliNews September 24, 2020

Shares of Russian internet major Yandex jumped by 14% on the Moscow Exchange on September 23, on top of 11% gain on September 22, to record-high RUB5,300 ($69) per share on the announcement of the acquisition of Russia's only pure online bank Tinkoff from the banking TCS Group. 

As reported by bne IntelliNews, after a divorce from state-controlled Sberbank, Yandex has ventured on to the financial services terrain and has negotiated to acquire online bank Tinkoff for $5.5bn

Sberbank under its CEO, German Gref, has set out to manage an all-encompassing digital ecosystem under the Sber brand. By 2022 Sberbank plans to move about 80% of its services onto the new platform.

The reaction to the merger of Yandex and Tinkoff is positive, with strong synergies seen between two major players in their respective markets, posing serious competitive threat to Sberbank and the emerging Sber ecosystem. 

Previously the founder of TCS Group, Oleg Tinkov, and the founder of Yandex, Arcady Volozh, flirted with the merger idea, arguing that capitalisation of the merged company could exceed $20bn and unite prime human resources in both segments, making a strong competitor for Sberbank.

Forbes estimated that the fortunes of Volozh and of Tinkov gained $227mn and $32mn since the announcement. In a separate report, Tinkov said that his bank will maintain the Tinkoff brand after the merger with Yandex, with no major changes for the existing clients of the bank. Tinkov personally holds 40.4% in TCS Group and 88.6% of votes, with another 6.5% held by the management and the rest freefloated. 

BCS Global Markets on September 23 wrote that Yandex, as one of the leading IT players in Russia, is seen as "a very strong shareholder to support TCS’ future developments with best-in-class technology and strong customer base." 

"The deal would create a player covering almost all the customers’ digital needs, would allow for a cross-sell into existing customer bases and would help offer more relevant products (based on combined customer knowledge," BCS Global Markets commented.

Analysts at BCS GM believe the current management of TCS should see Yandex as a new shareholder as a positive. "Such a player, with its 80-90mn audience and advanced technologies, may indeed change the state of things in the financial sector," they wrote. 

BCS GM estimated that the deal price of $27.64 per GDR of TCS makes a 8% premium to the closing price of September 21, 10.4% to one-month weighted-average and 16.9% to three-month weighted-average.

As for effects on Yandex, at the set price tag, the deal may be value-accretive, as TCS is a strong banking player, the deal is carried out at a moderate premium, with possibility for synergies, BCS GM notes.

On the flipside the analysts see credit risks, likely net debt and shareholder dilution through a share issue to finance the deal, as well as a risk of a higher price tag for Yandex.