The Wall Street Journal
Russia Seizes Assets of Two Western Conglomerates
Story by Georgi Kantchev, Saabira Chaudhuri • 5h ago
Russia has unexpectedly seized the local operations of Carlsberg and Danone, two of the world’s largest consumer-goods companies, in a move that escalates economic hostilities with the West.
In a decree signed by President Vladimir Putin on Sunday, Russia placed Danone and Carlsberg’s local operations under temporary management, putting them under the control of the federal state property management agency, Rosimushchestvo.
The move is the second time Russia has seized Western assets in the country since the Kremlin unveiled a decree in April that allows the state to take temporary control of assets of companies or individuals from what Moscow calls “unfriendly” states. Russian officials have said that the seizures are in retaliation for similar moves by Western countries. In April, Russia took control of utilities owned by Germany’s Uniper and Finland’s Fortum.
The decree set up new hurdles for foreign companies trying to exit from the country, marking a step up in the economic battle that is taking place in parallel with the kinetic war being fought on the battlefields of Ukraine.
Many Western companies have struggled to wind up their operations in Russia and the latest asset seizures serve as a warning shot to those still looking to exit. Companies that said they would depart last year have been struggling to find buyers and, when they do, to close deals in part because of sanctions. Now there is another hurdle: the prospect of businesses being seized.
“It’s another dimension of the war,” Alexandra Prokopenko, a former Russian central bank official who is now a nonresident scholar at the Berlin-based Carnegie Russia Eurasia Center. “Western assets in Russia aren’t safe anymore.”
The move, Prokopenko said, shows that “the Kremlin has abandoned any idea of a possible normalization of relations with Europe, either now or later.”
More than 1,000 multinational companies have left or substantially curtailed operations in Russia, according to the Chief Executive Leadership Institute, an arm of the Yale School of Management that has compiled a database of the corporate exodus since the beginning of the war.
Some firms were able to secure speedy departures, often by selling at steep discounts or turning the keys over to regional management. But many of those that have curtailed their business have continued operating in Russia, sometimes in limited capacity or without new investments.
The Yale researchers count at least 400 foreign companies that have either continued to do business in Russia or not meaningfully scaled back.
Among the Western companies to remain are several makers of food, drink and household products. For example, PepsiCo, Procter & Gamble and Unilever have been selling a curtailed array of products in Russia since the invasion, describing these as essentials.
Other major companies looking to exit Russia include brewing giant Heineken, which said in March it was doing everything it could to find a new owner for its business.
Russia has made it tough to leave. In December, the Kremlin adopted rules requiring the Russian government to conduct an assessment of the market value of any asset for sale by a foreign company. The seller is then required to sell the asset at a 50% discount of that value. Additionally, Moscow is levying an exit tax of 10% of the transaction price as it tries to shore up its significant budget deficit, weighed by the costs of the war in Ukraine.
Carlsberg said in March last year that it planned to exit Russia. The Danish brewer was among the Western companies with the biggest exposure to Russia through its Baltika Breweries business. Baltika has eight breweries in Russia and around 8,400 employees there, representing more than one in every five members of Carlsberg’s total global workforce.
Carlsberg only last month said it had struck a deal to sell its Russia business, adding that the process had been “very complicated.” It warned that the deal going through was subject to regulatory approval by the Russian government.
The brewer on Sunday said it hadn’t been given any official information from Russian authorities about the decree, or its consequences.
“The Carlsberg Group has been operating in accordance with local rules and regulations in Russia and finds this development unexpected,” it said in a statement.
Danone, the largest dairy company in Russia, hadn’t yet found a buyer for its dairy and plant-based arm in the country. The French company said in October last year that it had begun looking for ways to sell the business.
On Sunday, Danone said it was “preparing to take all necessary measures to protect its rights as shareholder of Danone Russia, and the continuity of the operations of the business.”
In April, Kremlin spokesman Dmitry Peskov said Moscow was taking retaliatory measures to what he described as Western efforts to seize Russian assets abroad. Last year, Germany took control of the German business of Russian oil giant Rosneft and put Gazprom’s German natural-gas business, formerly known as Gazprom Germania, under trusteeship.
Russia at the time warned that it could seize more Western assets.
Moscow’s power to seize Western assets “will be used more often, this is only the beginning,” Prokopenko said.
