(Bloomberg) -- One of President Vladimir Putin’s top Kremlin aides is leading negotiations to decide the fate of Russia’s most popular search engine, whose founder was sanctioned over Yandex NV’s portrayal of the war in Ukraine, according to three people familiar with the talks.
Sergei Kiriyenko, the first deputy head of Putin’s administration, is heading the talks over the public company as Yandex’s founder, Arkady Volozh, has been sidelined due to European Union sanctions, according to the people, who asked not to be identified because the plans are private.
Kremlin spokesman Dmitry Peskov didn’t immediately respond to a request to comment. A spokesperson for Yandex declined to comment.
Yandex, which controls over 60% of the Russian search market and also includes technology services ranging from ride-hailing to e-commerce, has come under intense pressure both in Russia and abroad since Putin’s Feb. 24 invasion of Ukraine. Volozh resigned as the company’s chief executive officer after the EU sanctioned him in June for Yandex’s role promoting Russian state media’s version of the war.
Volozh has called the sanctions against him “misguided and ultimately counterproductive.”
No proposals have been made to change the ownership of Yandex, and talks are focused for now on relocating the company from its corporate base in the Netherlands, which the Kremlin deems an unfriendly state, according to the people. The discussions involve former finance minister and the current head of the Audit Chamber, Alexei Kudrin, who was asked to help mediate a deal by Volozh, they said.
A spokesman for Kudrin at the Audit Chamber declined to comment on his role in the negotiations.
Volozh, who lives in Israel, is willing to give up his Yandex stake in exchange for the Kremlin’s blessing to allow him to keep intellectual property needed to develop some businesses abroad, according to two of the people, who are familiar with his thinking.
A Volozh family trust owns 8.6% of Yandex and controls over 45% of its voting shares, although Volozh transfered those rights to the board after the EU sanctioned him. Yandex has 87.5% of shares in free float, and those stocks have 46% of the voting power.
More than 10% of Yandex’s 19,000 employees have left Russia since the invasion as part of a wave of emigration among professionals who oppose the war, according to the two people. People from this group could become the core of an international entity that would split from the Russia-focused company and develop projects including its self-driving vehicle and cloud-computing divisions, they said.
Since the start of the war, Yandex has been forced to halt many of its international projects, including a robot delivery partnership in the US with Grubhub. Trading of its shares on the Nasdaq has been suspended indefinitely.
Kiriyenko, who is under US and EU sanctions, is among Putin’s most influential advisers and is responsible for the administration’s domestic affairs agenda. Bloomberg reported last month he is overseeing plans for referendums to annex Ukrainian territories occupied by Russian troops.
Yandex’s ownership structure has been the target of Kremlin pressure in the past, and in 2019 the company ceded some control over its governance after a member of Russia’s ruling party proposed a law that would have limited foreign holdings in IT companies. As part of that deal, intended to prevent government meddling in its business, an external foundation received a golden share that gives it veto rights over the transfer of Yandex’s intellectual property.
Yandex’s attempts to remain free of government influence became untenable amid the Kremlin’s crackdown on online information after the February invasion. Putin signed a law that made spreading what the authorities deemed “fake news” about the military punishable by as much as 15 years in prison. Soon after, Yandex came under fire from opponents of the war for whitewashing evidence of human rights crimes and the destruction of Ukrainian cities.
Numerous independent Russian media outlets were forced to shut down in the crackdown and other resources were blocked by the government censor. Among foreign technology companies, Meta Platforms Inc.’s Facebook and Instagram were banned in Russia and the local unit of Alphabet Inc.’s Google filed for bankruptcy.
By April, Yandex agreed to sell its news aggregator and a blog site to VK, which owns Russia’s biggest social network and is run by Kiriyenko’s son, Vladimir. VK is controlled by companies affiliated with Gazprom PJSC, the state-owned gas giant.
Even amid the government crackdown and international sanctions on Russia, Yandex has continued to post strong results, in part because it faced less domestic competition from companies like Google. Revenue rose 45% in the second quarter from a year earlier to 117.7 billion rubles ($1.9 billion), driven by growth in its search engine, mobility and e-commerce businesses.
However, its financial performance belies the turbulence the company is going through as the Kremlin expands its control over the internet and the West is increasingly suspicious of Russia. Yandex declined to provide any guidance on its outlook in its most recent results, citing uncertainty over the geopolitical situation.
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