‘Deal of the year’ is off

The Bell

Hello! This week our top story is the tale of how Russia’s $5.5 billion ‘deal of year’ between Yandex and Tinkoff Bank fell apart. We also have an in-depth profile of Sergei Kiriyenko, the Kremlin éminence grise who has found himself on an EU sanctions for the first time this week, and signs of a possible political endgame in Belarus.

‘Deal of the year’ ends in acrimony and insult  

The tie-up between Yandex – the so-called ‘Russian Google’ – and Tinkoff, one of the country’s biggest privately-owned banks, looked to be a match made in heaven. But this week it was all over – less than a month after the initial announcement. The bank said Friday that talks had broken down. Later, Oleg Tinkov, the bank’s founder, and Yandex managing director Tigran Khudaverdyan traded accusations in letters to employees. The Bell pieced together what happened.

How the deal unfolded

  • Rumors about the sale of Tinkoff Bank to Yandex started circulating in the summer. This week, Yandex’s Khudaverdyan retrospectively confirmed that “Oleg [Tinkov] approached [Yandex founder] Arkady [Volozh] with a proposal to consider buying the bank in July”. But Yandex was not the only interested party. The Bell’s sources have also identified another possible bidder for Tinkoff: billionaire Vladimir Yevtushenkov, owner of cellphone network MTS, with the backing of state-owned banking giant Sberbank.
  • At the end of September, details about the deal between Yandex and Tinkoff began to emerge on anonymous Telegram channels. Yandex was set to purchase 100 percent of Tinkoff’s stock, paying 50 percent in cash and the rest in Yandex shares. Then, TCS Group, Tinkoff’s parent company, announced it had agreed to sell 100 percent of its stock to Yandex for $5.5 billion. The following day, Tinkov muddied the waters, posting on Instagram that it wasn’t yet a done deal.
  • Telegram was abuzz this week with speculation the deal was not going well and that Tinkoff was in talks with rival bidders, including MTS. The Bell found credible evidence this was true, and established Sberbank was ready to invest in a different buyer.

What went wrong?

  • The major sticking point between Yandex and Tinkoff appeared to be that the two sides could not agree on how the bank should be managed. According to one source, Tinkov wanted to stay in charge of his business and felt the terms of the deal were “onerous”. 
  • Other sources said money was the issue. One source claimed that Tinkov disputed the price: Yandex was willing to pay four times the value of the capital, which is generous for a bank, but Tinkov wanted more. Many smaller shareholders were also unhappy.
  • Tinkov gave weight to these theories in an emotional letter to staff, which The Bell obtained. He claimed Yandex simply wanted to buy Tinkoff, without finding any synergy, and promised that “we, not they, will buy this shitty Yandex! I have no faith in this overly bureaucratic company.”
  • Khudaverdyan wrote a personal, albeit more restrained, letter to Yandex staff. According to him, Yandex made repeated concessions but new demands kept coming. He said he wasn’t surprised when Tinkoff announced it was withdrawing from the deal.

What next?

For the sector This doesn’t necessarily mean the deal will never go ahead — but certainly not anytime soon (Yandex is barred from making a new offer for TCS Group in the next six months). Despite expressing public regret over the failed deal, Sberbank head German Gref might actually be pleased: the merged company would have been a serious rival for his bank. Yandex has pledged to develop its own fintech arm without Tinkoff, but that will take time.

For Oleg Tinkov The businessman is currently in London recovering from leukaemia. He faces a new court hearing next month over his extradition to the U.S. on tax evasion allegations. Lawyer Alexander Zakharov estimated that Tinkov could incur a fine of $500 million, which indicates the businessman might need to find some cash in a hurry.

Earlier this year, Tinkov distanced himself from the management of the bank and even transferred his shares to a family trust. Now, it has been revealed that he remains the main decisionmaker.

Why the world should care When we talk about the deal of the year, these are not empty words. Tinkoff and Yandex are rare phenomena on the Russian market: both grew without the involvement of the state, are traded on international exchanges and used by millions of Russians. As a rule, almost all big Russian business stories end with someone in jail — again, Tinkoff and Yandex are exceptions.


Is Belarus approaching a political denouement?

A third month of civil disobedience in Belarus began this week as President Alexander Lukashenko met with an opposition leader, albeit in a KGB jail. Meanwhile Svetlana Tikhanovskaya, the figurehead of the protest movement, issued a ‘people’s ultimatum’ on behalf of the Belarusian public. Many pointed out that events seem to be moving toward an endgame.

  • Lukashenko’s official Telegram channel surprised everyone last weekend with photos from the president’s face-to-face meeting with Viktor Babariko, the most prominent opposition candidate in this year’s contentious presidential election, and several other opposition figures. The meeting took place in a KGB prison, where they have all been held for several months, at a table decorated with a bunch of flowers.

  • One of the main topics of conversation was constitutional reform. “You can’t write a constitution on the streets,” was Lukashenko’s key quote. Other details of the five-hour meeting were not disclosed. After the president left, two of the participants were released to house arrest — one of them said he had been tasked with producing constitutional amendments. But the true leaders of the public protests were not impressed with Lukashenko’s performance. Maria Kolesnikova (Babariko’s former chief-of-staff and de facto opposition leader) is also in detention, and refused to attend the meeting. Sergei Tikhanovsky, one of the most popular ex-candidates, later explained he attended but refused to shake Lukashenko’s hand – and thus did not appear in the official reports.
  • What’s it all about? Belarusian political analysts agree the meeting is evidence of Lukashenko’s weakness. “A leader with 80 percent support doesn’t need to talk with ‘criminals’,” expert Artyom Shraibman commented. For the past 26 years Lukashenko, much like Putin, has not exchanged so much as a word with his political opponents.
  • Shraibman suggested several possible reasons: Lukashenko may be looking to cast himself as a ‘humane leader’ and draw the sting from the protests; or he could be seeking to divide the opposition, enlisting some support for his constitutional reform plans. Lukashenko also clearly wants to move the discussion on from questions about his legitimacy and August’s rigged election. He’s much happier talking about constitutional amendments, an idea strongly endorsed by Putin.
  • None of this really worked: the opposition remains united with all its leaders condemning the meeting. The mass protests continue, despite a growing crackdown. It’s possible that the talks were Moscow’s idea, according to Shraibman (the Kremlin responded positively to the detention center summit saying “we welcome any dialogue”). In that case, they could be considered a success. Minsk received Friday the first $500 million of a $1.5 billion Russian loan that was promised by Putin last month. Lukashenko can take consolation in counting his money.
  • There was another unexpected turn of events this week when opposition leader Sergei Tikhanovsky was allowed to speak to his wife Svetlana on the phone for the first time in five months. The key takeaway from the unemotional fragments she released was her husband’s call to “get tougher”. Within two days of the call, Tikhanovskaya published an ultimatum: Lukashenko must go, political prisoners must be released, and the violence must stop by next weekend. If not, Belarus will be paralyzed by a general strike, roadblocks and a collapse of sales in state-run stores. This is the first time she has openly called on the Belarusian people to act. “Tikhanovskaya and the other opposition leaders are dependent on the protests, and have not been their driving force – now let’s see if it works the other way round,” expert Shraibman said.

Why the world should care Despite this unexpected flurry of action, it’s early to begin talking about breaking the political deadlock and there’s no indication Lukashenko is ready for a meaningful dialog. Tikhanovskaya’s ‘ultimatum’ is also ambiguous. Shraibman believes it should be seen as a means of keeping the movement going as the weather gets colder and people begin to tire.


Sensei and philosopher – meet Sergei Kiriyenko, the latest EU sanctions target

The European Union introduced new sanctions against six Russian officials Thursday in response to the poisoning of opposition leader Alexei Navalny. While most of the names on the list were familiar from previous sanction lists, Sergei Kiriyenko was a new appearance. The first deputy chief of the presidential administration (the most powerful decision-making body in the country), Kiriyenko is one of Russia’s most influential — and mysterious — political figures.

  • Kiriyenko is widely regarded as a man of liberal instincts. He began his career in Nizhny Novgorod as a businessman and was a close acquaintance of Boris Nemtsov, the local governor at the time and later a prominent opposition leader. Kiriyenko was one of the few officials to attend Nemtsov’s funeral after he was gunned down by the Kremlin in 2015. Nemtsov himself engineered Kiriyenko’s transfer to Moscow and backed him for a position at the Ministry of Energy.
  • In April 1998, then-President Boris Yeltsin named the 35-year-old Kiriyenko prime minister. Dubbed ‘Kinder Surprise’, he was deeply unpopular and had the misfortune to take office shortly before a collapse in oil prices pushed Russia into default. He resigned in August of the same year.
  • Although Kiriyenko was out of the government, he remained in politics. In 1999 he stood as a deputy for the Union of Right Forces, a liberal political party that included Nemtsov. Their election slogan was ‘Putin for president, Kiriyenko for parliament. We need young blood!’. The party got 8 percent of the vote. Later, Kiriyenko lost to Yury Luzhkov in a Moscow mayoral election. He didn’t remain in parliament for long — President Vladimir Putin appointed him to the role of plenipotentiary representative in the Volga region. In 2005, Kiriyenko was made head of state-owned nuclear corporation Rosatom.
  • Many were surprised in 2016 when Putin appointed Kiriyenko deputy chief of the presidential administration with responsibility for domestic politics – in effect, Russia’s chief ideologue. Kiriyenko has since helped create a technocratic political elite.
  • Kiriyenko’s greatest political achievement is thought to be Putin’s 2018 presidential victory, which earned Putin a record-breaking 56.2 million votes (76.65 percent of the electorate). TV presenter Ksenia Sobchak, a notional opposition candidate in the poll, was widely regarded as a Kiriyenko puppet.
  • Kiriyenko is one of Russia’s least publicity-hungry officials, and is rarely quoted in the media. Little is known of his private life, although he practices the Japanese martial art of Aikido and has the rank of fourth dan, earning him the right to be known as Sensei.
  • The politician is also a follower of Georgy Shchedrovitsky, a philosopher who founded the Moscow Methodological Circle in the 1950s. One of the group’s tenets is the idea that reality can be changed and society programmed. Shchedrovitsky’s followers – who have developed something of a cult around their hero – explore this idea through the framework of ‘games’. Shchedrovitsky’s son was a political consultant for Kiriyenko and members of the circle consulted ex-Ukrainian Prime Minister Arseniy Yatsenyuk.
  • Kiriyenko has even been linked with more extreme cults. German newspaper Berliner Zeitung reported in 1998 that staff at Garantiya bank, which Kiriyenko owned in Nizhny Novgorod, attended a college established by Scientology leader L. Ron Hubbard. Kiriyenko has repeatedly denied this.

Why is Kiriyenko facing sanctions?

Since he is responsible for domestic politics, any decision to attack Navalny could hardly have been made without Kiriyenko’s knowledge, according to expert Alexander Baunov. But Baunov added that this is only a formal explanation. In reality, no serious political analyst could hold Kiriyenko responsible for the decision to poison Navany: it is not his style, or actual remit.

Why the world should care This is the first time a top Russian politician with liberal leanings has been hit by personal sanctions from the West. Kiriyenko is a prime minister from the Yeltsin era, a time when Russia was still seen as a promising young democracy. Such a decision is not necessarily a reflection of Western ignorance; it’s more likely a statement by the EU that the old distinctions between ‘liberals’ and ‘siloviki’ in Russian politics are no longer relevant.


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