This article has been updated on July 20, 2023 at 11:45 a.m. CET with new developments
-Analysis-
MOSCOW — For months, French dairy group Danone had been negotiating behind the scenes in Moscow with potential buyers for its Russian activities. But on the evening of Sunday, July 16, the Kremlin cut short all talks, as President Vladimir Putin suddenly decided — by decree — to transfer to Rosimushestvo, the state holding agency, most of the Russian assets of both Danone and Danish brewer Carlsberg.
It was, in other words, a takeover by the Russian state.
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The two long-established, successful European-based multinational consumer groups had announced their intention to leave Russia last year. They hoped to choose their buyer — and limit their financial losses. Now, the placement of their assets under the control of the state agency, although officially “temporary,” de facto further limits their room for maneuver.
“We learned about the decree like everyone else on Sunday evening, without any warning,” says a source close to the French dairy giant’s negotiations, who hopes there’s still room for future talks.
But a European businessman involved in Moscow’s dealings with Western companies trying to leave Russia warns that the Kremlin may be shifting its strategy.
“Negotiations will resume, but they will take a very long time. In Russia, there’s nothing more permanent than the temporary,” quips the source. “Danone was due to announce the identity of its buyer in the next few days. This choice was not likely to satisfy the Ministry of Agriculture, one of the toughest negotiators with Western companies.”
Patrushev, father and son
It’s no coincidence that the two companies targeted by the presidential decree are in the agri-food sector, a field controlled by the Russian Ministry of Agriculture. The Minister is none other than Dmitri Patrushev, son of Nikolai Patrushev, Secretary of the National Security Council. The former spy and ex-chief of the FSB (secret service, one of the heirs to the KGB) is considered the most influential “siloviki” (security force representative) in Vladimir Putin’s entourage.
For months, companies considered more or less close to the Patrushevs had been circling Danone, as they had other food companies. Last October, the French group announced its intention to sell 12 dairy and plant-based products plants, keeping only one dedicated to infant nutrition.
There are “birds of prey” circling over Danone like other Western assets on the way out.
Multiple sources confirmed that negotiations had been progressing. Names of buyers had openly circulated: Rusagro, Cherkizovo, Agrarta, EkoNiva, Tkachev Agrocomplex.
In fact, discussions were dragging on. To comply with European measures against Moscow, Danone had to choose a buyer that was not subject to sanctions. This was not the case for Patrushev and a few other “birds of prey” circling over Danone like other Western assets on the way out.
In a move recalling the chaotic period after the fall of communism in Russia in the 90s, earlier this week, Yakub Zakriev, the nephew of Chechen leader and close Putin ally Ramzan Kadyrov, was appointed the new head of Danone’s Russia subsidiary.
Nationalization, a threat made real
By taking Danone and Carlsberg by surprise, Putin has confirmed the threat he made in response to the expropriation of Russian assets abroad: the nationalization of Western companies in Russia.
A real showdown on the economic front, 17 months after the Kremlin launched its “special military operation” in Ukraine and the first European and American economic sanctions against Moscow that quickly followed.
This decision to take control of assets comes at a time when the Kremlin has severely condemned Paris’s green light for the delivery of long-range missiles to Kyiv. In June, Putin had already signed a decree requiring private buyers of former Western assets to be entirely Russian-owned.
This meant excluding foreign shareholders, particularly from “unfriendly” countries such as France, which have applied sanctions against Moscow since the start of its offensive in Ukraine. This opened the door to the expropriation and nationalization of foreign companies.
The 10 conditions
This decision for Danone and Carlsberg also comes just a few days after the Russian government published its new rules for the withdrawal of Western companies. In practice, these “10 conditions” make any withdrawal even more difficult. For example, an “MBO” (management buyout), which Danone had once considered, is now almost impossible. According to the authorities, such sales to local management do not provide sufficient financial cover to develop activities. Above all, they are seen by Moscow as a way of keeping control and ensuring a possible return in the future.
For Western companies, there are no good solutions.
“In fact, the rules change all the time. But the message is now clear: either you stay, or you go,” warns the same European source involved in the discussions. “But for Western companies, there are no good solutions. If they stay, they are criticized in the West and in Kyiv. If they leave, they lose everything…”
The slightest transfer of activities must be authorized by a special commission set up by the government, with a discount that rises over a year from 20-30% to over 50% on the value of the asset. Then comes an “exit tax” to be paid at the time of sale, which, with last week’s new rules, rises to 15%.
In addition, companies are held hostage by financial sanctions and counter-sanctions: once the sale has been made, they must receive permission from the authorities to transfer their money. With the moves against Danone and Carlsberg, the trap is closing even tighter.
