Danone and Carlsberg operations taken over by Putin in Russia

17 Jul 2023 --- Russia will temporarily seize control of Danone and Carlsberg subsidiaries in the country as the operations have been put in “temporary management” of the state, under a new order signed by Russian President Vladimir Putin.

All properties, securities and shares of both companies are controlled by the Russian Federation with immediate effect.

The Carlsberg group has responded by saying it has not received any official information from Russian authorities regarding the presidential decree or its consequences.

A statement says the development is “unexpected.”

Meanwhile, Danone says it is “currently investigating the situation.”

Heineken and Pernod Ricard – the maker of Absolut Vodka – made public their fears earlier this year of a forceful nationalization of their businesses in Russia.

Adding to the April 25 decree on temporary management (temporary expropriation), companies in the country have to navigate complex intentional bankruptcy laws that can lead to criminal liabilities and potentially to forceful nationalization.

It is unclear how this will affect Danone’s infant nutrition business in the country, which the company planned to keep operating. (Image Credits: Danone).Heineken assessed the nationalization risks as “significant.”

Carlsberg prospects “uncertain”
Carlsberg, which says it was “operating in accordance with local rules and regulations,” says it will assess the legal and operational consequences of this development and “take all necessary actions in response.”

“On 28 March 2022, the Carlsberg Group announced its decision to seek a full disposal of its business in Russia. Following an extensive process of separating the business from the rest of the Carlsberg Group, an agreement to sell the Russian business had already been signed on 23 June 2023, subject to regulatory approvals and fulfillment of certain conditions in a number of jurisdictions,” explains the business.

“Following the presidential decree, the prospects for this sales process are now highly uncertain.”

Carlsberg has not revealed the financial implications of Russia’s decision. However the company will reveal them “as soon as possible.”

Danone on the case
Danone says it has “taken note” of the Russian authorities’ decision and is currently investigating the situation.

“On October 14, 2022, Danone launched a process to transfer the control of its EDP Business in Russia, which was progressing according to the expected schedule,” explains the yogurt giant.

“Danone is 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 the interest of all stakeholders, in particular its employees.”

The company reveals that the seizing of its Russian business does not impact its financial guidance for 2023.

Nonetheless, it is unclear how this will affect Danone’s infant nutrition business in the country, as the company announced in October that it was planning to maintain operations of that segment in the country.Pernod Ricard stopped exporting vodka to Russia due to public outcry in Sweden. (Image Credits: Pernod Ricard).

Winter of business confidence
The business climate in Russia has reached uncertainty levels not seen in decades, with business confidence being in shambles.

The country has dealt with a mass exodus of companies following Ukraine's ongoing invasion and war. 

It’s been over a year since McDonald’s left the country after a 32-year stay that symbolized to many the Cold War’s end in the 90s. 

Businesses that have not pulled out yet from the country have had to deal with criticism from public figures and boycotts – like Absolut Vodka did in Sweden before it stopped exporting  products to Russia – and some companies like Unilever have been named “international sponsors of war” by the Ukrainian National Agency on Corruption Prevention. 

Unilever made clear that businesses face the dilemma of choosing between expropriation if they dare to try to close down operations – like Carlsberg and Danone, which were in the process of leaving Russia – or continuing operations and facing backlash. 

“None of these options are desirable,” Unilever underscored.

By Marc Cervera