bne IntelliNews – MOSCOW BLOG: Nationalization of the Russian Internet | Panda Anku

Since sanctions were imposed on Russia, there has been a bonanza of M&A activity as listed companies and oligarchs have to divest their subsidiaries to protect them from attack. Often this means that people who find themselves on a list have their business excluded because it is too important and they have to sell.

So has Leonid Fedun, who is number two at oil major Lukoil and is on the list but his company is not. He also owned the legendary Spartak FC, so the oil company conveniently bought the club and a top-class Moscow stadium for “PR purposes”. The upheavals are so great that there are sometimes real bargains on offer and market shares are being shifted dramatically.

Yandex, the “Google of Russia,” is another company that has found its bosses on the lists, but not the company itself. It has just sold its leading Yandex.News to competitor VK, “the Facebook of Russia”.

Yandex, formerly the most valuable internet company not only in Russia but in all of Europe, has been accused of filtering its news to promote the war in Ukraine. In its defense, the company says it’s now illegal to publish news from news sources other than government-approved, and they’re overwhelmingly pro-war, so it had no choice.

VK was a big winner from all of this because while Yandex has been cautious and cut costs – it reported stellar results just yesterday and fared much better than its rival due to a spate of ads due to the sanctions – VK is in tears and a raft snatch from assets.

The company’s fortunes have changed a lot since the shareholders switched in December 2021 and took over Vladimir Kiriyenko, the son of former Prime Minister Sergei Kiriyenko and now a key Kremlin insider.

VK has consolidated its position in the Russian market and will emerge from this crisis as Russia’s leading internet company, even as its competitors suffer from a dramatic technology crisis that has caused industry experts to flee en masse and foreign investors to abandon their positions in Russian companies.

Banking giant Sber is perhaps the biggest loser of all these changes. It dropped the word “bank” from its old name, Sberbank, as it aspired to become some kind of lifestyle portal that also took care of your money and invested in everything etch. But now, as a sanctioned entity, it has dumped a slew of online businesses and been forced to abandon its ambitions. VK also bought some of its assets.

VK was effectively taken over by the state, which explains why it hasn’t slowed down its investment and acquisition plans. One of the side effects of all of these mergers and acquisitions is that the Kremlin will gain much more control over the internet, which until now has been largely privately owned.

What is happening now reminds me of the de facto renationalization of the oil sector shortly after it was taken over by Russian President Vladimir Putin in 2000. In the 1990s, the oligarchs “privatized” the oil sector, which ended up being unusually largely private for an oil-rich nation Hands. However, the Yukos case in particular created the state-owned Rosneft and effectively nationalized a large part of Russia’s oil sector.

Now the same kind of backdoor nationalizations via market mechanisms seem to be happening again – but this time it’s the internet that’s being nationalized. It is a much more subtle process than blanket nationalization as it is conducted using market methods. As with the oil sector, many companies like Lukoil remain privately held, but you have to be careful as it’s clear that stepping foot out of line could mean losing your business.

This is a hybrid system that Russian President Vladimir Putin has been building for years and that we call the ZAO-Kremlin: the key assets in a sector remain in the hands of the state, but usually a second state-owned rival is created to compete directly with it and it keeps it sharp while there is another layer of companies that are fully privately owned to create a real marketplace with all the benefits that competition brings.

Yandex remains nominally private, but it’s redesigning its business to reflect the new, more constrained space in which it must operate. News has become a business minefield in Russia, and Yandex was not only happy that it was shot, the state must be just as happy to buy it. In exchange, Yandex gets the grocery delivery service Delivery Club, which is a nice, hassle-free e-commerce store.

One could argue that Yandex was foolhardy to even get into the news business. A similar thing happened on television, where the STS broadcaster is the only private and publicly traded television company, but told me years ago that they avoid news altogether because it “causes too many problems”. All of the TV stations that carry news are all state-owned, but the state has long wanted to take back control of the internet, and sanctions have provided the means to grab large swaths of it without too much fuss.

This article originally appeared in Editor’s Picks, a free daily email selection of the best stories from bne IntelliNews over the past 24 hours. Sign up for free here.

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