On Sunday, Russia took a bold step, further highlighting the escalating economic tensions between itself and the West.
President Vladimir Putin signed a decree allowing the government to assume control of the French dairy giant Danone’s Russian subsidiary and Carlsberg’s stake in a local brewery. [Source]
This decree specifically targets Danone’s Russian subsidiary and Carlsberg’s Russian beer brewing company, Baltika. Consequently, shares of Danone Russia and Baltika will now fall under the temporary management of the Russian state.
The decree did not specify a reason for this takeover. However, in April, Putin had signed another decree permitting the government to temporarily seize foreign assets. That particular decree targeted Germany’s Uniper and Finland’s Fortum. [Source]
In response, Carlsberg issued a statement: “The Carlsberg Group has not received any official information from the Russian Authorities concerning the presidential decree or its implications for Baltika Breweries.”
Russia’s assertiveness towards Western companies is not unexpected. Many foreign companies have been contemplating an exit since the onset of the conflict with Ukraine. Post-invasion, over 1,000 companies halted all operations in Russia. [Source]
Why did Danone and Carlsberg remain?
Baltika, Carlsberg’s Russian brewing arm, held an impressive 30% of the Russian beer market. In March, they declared their intention to divest all their Russian shares. [Source]
Danone employs 7,500 individuals across 13 factories and was on the cusp of finalizing an agreement to sell their Russian subsidiary.
These significant Western enterprises aren’t the sole entities with interests in the Russian market.
Nestle, Heineken, BAT, Unilever, and Mondelez maintain operations within Russia, though they’re strategizing their departure.
The measures against Carlsberg and Danone have sounded an alarm. As of December, Russia had announced that Western companies must divest their operations at a reduced price, with 10% payable to the state. This tactic is part of Russia’s longer-term strategy.
While Russia is appropriating foreign assets, Ukraine adopts a contrasting approach. The country encourages global companies to consider relocation within its borders. [Source]
Sergiy Tsivkach, the CEO of UkraineInvest, is actively courting global businesses that have withdrawn investments from Russia, aiming to persuade them to establish manufacturing bases in Ukraine.
Is a move to Ukraine pragmatic? While Ukraine promotes itself as a dependable ally, it continues to grapple with the aftermath of Russia’s hostile invasion in February 2022.
Caught off-guard, Western companies now scramble to assess the landscape and safeguard their stakeholders’ interests.