Yandex board of directors has approved targeted amendments to the company’s corporate governance structure, to «respond to an evolving regulatory environment». Moreover, Anton Gorelkin, the lawmaker behind the proposed legislation capping foreign ownership of significant Internet resources at 20%, withdrew the bill.
In our view, these changes suggest a constructive dialogue between the company and the state. Moreover, during the conference call Yandex management confirmed that all the changes resulted from lengthy negotiations with government agencies and were approved by them.
The news therefore offset the risks of dramatic changes in the company's ownership structure and its business integrity breach, which is positive for the value of Yandex and its shares (+11% on Monday, November 18). Our Yandex target price is 2850 RUB per share with an investment period through 2020 (+13% upside).
On a separate issue, Yandex board of directors has launched a repurchase programme totalling up to $300 mln worth of Class A shares of Yandex N.V. that will be in effect for up to twelve months, a move that is seen to bolster the company’s shares.
Corporate management structure changes include the creation of a Public Interest Foundation (PIF), with no economic rights, but with certain limited governance rights.
- The company’s Priority Share, currently held by Sberbank, will be transferred to the PIF. The amended Priority Share will give the PIF the right to block the accumulation by a single entity, or a group of related parties acting in concert, of shares representing 10% or more of economic or voting interests in Yandex (compared with the current threshold of 25%)
- The PIF will have the right to make binding nominations of two members of the Yandex NV twelve-person board. The board is proposing Vice-Rector of the Russian Presidential Academy of National Economy and Public Administration (RANEPA), Director of the Graduate School of Public Administration Alexei Komissarov and VTB Capital CEO Alexei Yakovitsky to serve as the initial Designated Directors. A new public interest committee which will consist of both Designated Directors and Arkady Volozh will have an oversight of the national security issues. The Designated Director will have the right to veto four candidates for Yandex board
- The Public Interest Committee will watch over following deals with a right to block them: 1) disposal of material intellectual property, 2) the provision of direct access to personal data of Russian users to foreign persons, 3) entry into agreements with a non-Russian state or international intergovernmental organizations
- The Public Interest Foundation will be entitled to remove the Yandex Russia General Director on a temporary basis if a decision of the Public Interest Committee is breached by Yandex Russia, the foundation’s work is hindered or Yandex Russia decides on the national security matters
- The Public Interest Foundation will be governed by the Foundation Board that will be composed of 11 members. Five of the 11 directors will be nominated by Russian academic institutions (Moscow Institute of Physics and Technology («MIPT»), Moscow State University («MSU»), National Research University «Higher School of Economics» («HSE»), Saint Petersburg University («SPbU») and University of Information Technologies, Mechanics and Optics («ITMO»)), three of the 11 directors will be nominated by specified non-governmental institutions (Russian Union of Industrialists and Entrepreneurs, Moscow School of Management Skolkovo and Moscow School No. 57 Alumni Fund), three of the 11 directors will be members of Yandex Group management (Arkady Volozh, Tigran Khudaverdyan and Elena Bunina)
Arkady Volozh, CEO and founder of the company, intends to transfer 48.4% of Class B shares (with 10:1 votes against Class A shares) to a family trust. The amendment would provide that Class B Shares held by a family trust would not automatically convert until the end of a period of two years following the holder’s death, at which point the shares will automatically convert into Class A Shares. Mr. Volozh and the Volozh Family Trust intend to enter into a lock-up agreement in favour of the Company with respect to 95% of the Class B Shares currently held by Mr. Volozh, pursuant to which they will undertake not to dispose of such shares until 2022. The amendments guarantee against dramatic changes in the company's voting structure in the coming years. No changes in the governance and ownership structure are planned, the management confirmed during the conference call.
The proposed amendments are subject to shareholder approval on December 20, 2019 (75% of votes are required with a 50%+ turnout), including the separate approval of the Class A shareholders. The record date for the shareholders meeting is November 22, 2019.
Anna Kupriyanova,
Senior investment strategist
