Yandex, the "Google of Russia", and Uber have agreed to merge their ride-sharing businesses in Russia and five neighboring markets with Yandex as leading partner, the companies said on Thursday.
The deal marks another pullback from Uber's breakneck global expansion, coming a year after its exit from China.
In a joint statement, Yandex and Uber said they will join forces in Russia, Armenia, Azerbaijan, Belarus, Georgia and Kazakhstan to create a new company operating in some 127 cities, in a deal expected to close in the fourth quarter.
As part of the deal, Uber will contribute its UberEATS food delivery business in the six-country region to the new venture. Diversified internet giant Yandex is the dominant player in Web search, maps and mobile navigation in the region.
San Francisco-based Uber has agreed to invest $225 million while Yandex has agreed to invest $100 million into a new joint company in which Yandex will own 59.3 percent, Uber hold 36.6 percent and employees having a 4.1 percent stake.
Uber said that the merger in Eastern Europe does not imply a strategy of further retrenchment elsewhere. Indeed, financial terms of the deal make it a lucrative one, it said.
"This is an exciting opportunity in a unique situation and our operations in other countries will not be affected," Pierre-Dimitri Gore-Coty, the head of Uber in Europe, the Middle East and Africa, said in a blog post addressed to Uber employees.
Gore-Coty said Uber's 36.6 percent stake is worth $1.4 billion, based on an agreed valuation of $3.725 billion for the combined company.
That marks a sizeable gain on the $170 million Uber invested since entering the region three-and-a-half years ago, even with the new $225 million investment.
Uber sold its Chinese business to far larger local rival Didi Chuxing a year ago in return for Uber receiving a 17.5 percent stake in Didi which was then valued at $35 billion.
While Uber no longer exists in China, the paper value of its stake in Didi has risen to around $8 billion from $6.1 billion, based on Didi's recent funding round valued at $50 billion.
Improved Driving Conditions
The unified business in Russia and surrounding markets also helps Uber become more sustainable, he said, by helping it cut losses as part of a global drive toward eventual profitability.
Uber reported in late May that its net loss, excluding employee stock options and other items, narrowed in the first quarter to $708 million from $991 million in the fourth quarter.
The ownership stakes reflect how Yandex.Taxi is roughly twice the size of Uber in the region.
As of June, Yandex.Taxi had an annual run rate of 285 million rides and gross bookings of $1.01 billion, while Uber had 134 million rides and $566 million in bookings, the companies said.
Yandex and Uber compete in Russia with rivals including Fasten-owned Rutaxi and Saturn, Maxim and Gett, the Israeli startup backed by German automaker Volkswagen (VOWG_p.DE).
Yandex.Taxi, which was founded in 2011, is active in 127 cities across the region. Uber, founded in 2009, is active in 16 cities in Russia and five cities in Azerbaijan, Belarus and Kazakhstan. Uber does not now operate in Armenia or Georgia.
Following the closing of the deal, passengers will be able to continue to use either Yandex or Uber apps. The driver apps of the two companies will be integrated into a single app for greater efficiency, they said.
Yandex.Taxi Chief Executive Tigran Khudaverdyan will become the CEO of the combined business and Yandex will consolidate the new company's results in its financial statements. Yandex will hold four board seats, while Uber holds three, they said.
Uber operates in nearly 600 cities worldwide.