6th Dec 2023


EU firms expected to flee Russia after Danone, Carlsberg raid

  • Danish brewer had almost completed its sell-off when the decree came out (Photo: Hernán Piñera)
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Russia's raid on Carlsberg and Danone will likely see other foreign firms still there "stampede to the exit", the Yale School of Management says.

With one swipe of his pen last Sunday (16 July), Russian president Vladimir Putin suddenly snatched control of Carlsberg and Danone's Russian beer and yoghurt-making subsidiaries.

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Neither the Danish brewer nor the French food-maker would tell EUobserver how much this will cost them, but the subsidiaries accounted for between 2 and 6 percent of their global turnover, according to industry estimates.

Both firms said in press releases they were surprised by the move and were considering legal action.

But for Jeff Sonnenfeld, a senior professor at the Yale School of Management in the US: "They really should have seen it coming — they were naive".

"I wouldn't be surprised if [British-Dutch consumer goods firm] Unilever or high-profile consumer brands, such as [Italian fashion label] Benetton or [US soft-drinks maker] PepsiCo, are next in line [for asset-grabs]," he added.

The Yale School of Management has been tracking foreign investors in Russia since Putin invaded Ukraine last February.

Some 1,050 firms fled Russia immediately, but about 600 are still there, even if some of them, including Danone and Carlsberg, had belatedly started the process of selling up.

"That's the punishment for vacillating," Sonnenfeld told EUobserver on Tuesday.

"This [Putin's corporate raid] should cause a stampede to the exit — it's ridiculously risky and foolish for them to stay there," he added.

Putin already did the same to Finnish and German energy firms Fortum and Uniper in April.

And if Danone and Carlsberg are keeping quiet, Fortum's reaction gives a clue to what they might do next.

Fortum will "fully write down the entire book value of its Russian assets", recording a hit of €1.7bn for the second quarter of 2023, a spokeswoman told EUobserver.

It will still try to sell what Putin took over, because "due to the wording in the Russian presidential decree, Fortum still holds the formal title of the assets and therefore continues to pursue a divestment".

And it will try to recoup its losses via international arbitration.

Fortum "sent notices of dispute to the Russian Federation due to the violations of international investment treaty protection" on 13 July, the spokeswoman said.

"These notices of dispute are the first step required in the arbitration proceedings, which are expected to be initiated at the end 2023," she added.

But if any EU company thinks Putin will abide by the verdict of an arbitration tribunal or any other court, that's also naive, Yale's Sonnenfeld said.

"They have zero chance of getting their money back via legal means — it would be Quixotic and a waste of time," he said.

Every company still in Russia should simply write off their assets and move on, he added, citing Western energy giants Exxon and BP, who did so within days of Putin's invasion, as models.

Companies fighting to keep their Russian business suffer "humiliation, reputational risks, operational risks ... it's not in the interests of the shareholders, they're better off with expropriation," Sonnenfeld said.

By staying, they imply "endorsement of Putin's evil", he added.

They also contribute to the war in real as well as propaganda terms — EU-based firms paid the Russian state at least €530m in profit taxes last year, according to the Kyiv School of Economics.

"Most Western firms pulled out of Russia and were recognised as having done the right thing," said Bill Browder, a British hedge-fund manager whose Russian business was raided by corrupt Russian officials already back in 2007.

"Those who stubbornly stayed have the double whammy of losing their assets and being labelled by the markets as greedy supporters of Putin's war," Browder added.

"Danone has been reluctant to stop doing business even in the occupied regions of Ukraine. It seems that the time has come to pick up the bill," Lukas Andriukaitis, a Russia expert at the Atlantic Council think-tank in the US, also said.

Outside investors used to account for a third of the Russian economy before the war, posing the question why Putin is now stealing from his last few foreign friends.

For some, his motives are mainly financial, amid the spiralling costs of war and sanctions.

"He's just raiding the coffers of any companies he can … he's throwing his own living-room furniture into the furnace of war to keep things going," Yale's Sonnenfeld said.

"Both companies [Carlsberg and Danone] were in the process of selling their Russian assets. This process, the potential revenue thereof, and a possible reduction in the workforce have now been stopped by the state," added Filip Medunic, a Russia expert at the European Council for Foreign Relations (ECFR), a think-tank.

For Browder, the motivation was more political.

Putin's decree came just five days after France promised Kyiv long-range Scalp missiles on 11 July and a few weeks after Denmark pledged €2.8bn more in military aid to Ukraine.

"The message is not to the companies but to the governments where the companies are headquartered — that they shouldn't support Ukraine," Browder said.

Mafia mentality

But for others, the Russian leader's motives were also personal, showing the same kind of psychology as a mafia boss trying to save face.

Putin wants "revenge" for EU sanctions and Ukraine arms deliveries, Andriukaitis said.

"Politics are of course important, but I think it is necessary to remember that Russia is a mafia state and they operate with such a mentality," he added.

"It's a move to show that the Russian state doesn't have its hands tied, even in the face of Western sanctions, and that it too can seize foreign assets," the ECFR's Medunic said.

"It's an attempt at tit for tat," he added.


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