Russia has taken temporary control of "Baltika" and the Russian subsidiary of Danone. The decree was signed by Russian President Vladimir Putin on July 16, Euronews has reported.
According to the document, 100% of the shares of the Russian division of the French company Danone, as well as stakes in Swedish and German entities that own "Baltika," have been transferred to Rosimushchestvo (Russian government property management agency).
Legal experts note that this significantly limits the companies' ability to manage their businesses in Russia and may likely disrupt the deals to sell Russian assets to potential buyers.
According to lawyers interviewed by "Vedomosti," this measure cannot be called a "direct nationalization" of assets of foreign companies, but it can significantly impact their ability to manage their businesses in Russia and, in particular, disrupt deals with potential buyers that are already in progress. Yuri Fedyukin, Managing Partner at Enterprise Legal Solutions, notes that technically the shareholders remain owners of their stakes and assets in their Russian companies, but the external manager gains all the leverage to make decisions that affect their business operations.
"In simpler terms, the external manager behaves as if they were a shareholder/owner, including participation in general shareholders' meetings and voting, but they do not have the right to sell, transfer, gift, or dispose of the transferred assets and stakes in the authorized capital," he explains.
"Baltika" produces beer under brands such as "Zhigulevskoye," Tuborg, Zatecky Gus, Kronenbourg 1664, S&R's Garage, among others. In 2022, the company's revenue increased by 21.96% to 101 billion rubles, with a net profit of $110 mn during that period, according to "SPARK-Interfax" data. The owner of "Baltika," Carlsberg Group, announced its intentions to exit the Russian market in March 2022. In June of this year, they signed an agreement for the sale of their Russian business, with the buyer undisclosed.
"Baltika" and "Danone Russia" are not the first companies with foreign owners to be placed under temporary state control. In April of this year, similar measures were implemented by the Russian President against energy companies. While the assets of the latter were critical for energy generation in several regions of Russia, the same cannot be said for "Baltika" and "Danone Russia," notes Fedyukin. According to him, all of this implies that the risks of applying the procedure for transferring stakes and assets of foreign holdings under temporary control by Russia arise for a wide range of companies.
The revenue of the Russian subsidiary of Danone increased by 9.14% in 2022, and the net profit for the company amounted to more than $60 mn.
This sends a clear signal to foreign companies, who now must choose between staying in Russia or temporarily relinquishing their ownership, says Artem Motorny, Managing Partner at Walnut Capital.
The inclusion of "Baltika" and "Danone Russia" in the list of companies whose shares are placed under temporary control by Rosimushchestvo can theoretically be challenged, Fedyukin points out.
However, as of today, the judicial practice contains only one case where a positive decision was made in favor of the plaintiff, and that was back in the 1990s. Dmitry Prosvirin, Managing Partner at the law firm "Central District," agrees, noting that no interested party has managed to challenge such a decision.
Danone was the largest milk processor in Russia in 2021. It has 13 plants in the country that produce yogurts, desserts, and other dairy products under brands such as "Activia," "Prostokvashino," Actimel, and "Rastishka."
This is not the first instance of effective nationalization of foreign companies in Russia. In April, Vladimir Putin similarly transferred the assets of energy companies "Unipro" and "Fortum" under external control.
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