Why, oh why, did Carlsberg drag out its Russia exit?

Russia | On 16 July, Russia seized control of the local subsidiaries of France’s Danone and Denmark’s Carlsberg under a decree aimed at companies from “unfriendly” countries.

According to President Vladimir Putin’s decree, the shares and assets of Carlsberg’s Baltika breweries and Danone Russia were to be transferred to Russia’s Federal Property Management Agency for “temporary management”.

It has since emerged that Taimuraz Bolloyev, one of Mr Putin’s cronies, was appointed as the head of Baltika, according to the Financial Times newspaper. Mr Bolloyev must have been waiting in the wings because … rolling drums here … he already used to be Baltika’s chief honcho from 1991 to 2004. It was Mr Bolloyev who built Baltika to become Russia’s beer market leader in the Noughties.

Feigning surprise

The general media response was like: “Who should have seen this coming?” Yet, the Kremlin has made it clear - almost since the beginning of the invasion and the launch of western sanctions - that foreign companies ran the risk of nationalisation or state administration if they did not play by its rules.

The Financial Times also found out that Carlsberg’s preferred buyer was the Arnest Group, the largest manufacturer of perfume, cosmetic and household products in aerosol packaging in Russia. Arnest had already acquired the Ball Corporation’s Russian business in September 2022 for USD 530 million – after only a few months of talks.

US-based Ball, the world's largest manufacturer of metal beverage and food containers, said in March 2022 that it would exit the market following the invasion of Ukraine. Russia represented 4 percent of Ball’s 2021 net turnover (USD 13.8 billion) and 8 percent of its operating profit – in other words, it was no small fry. Incidentally, the transaction was not subject to any conditions, and all required approvals were obtained.

Then, why did it take Carlsberg so long to sign the papers and submit the transaction to the government body responsible for approval? Only in June did Carlsberg announce that it had found a buyer for its Russian business, but without giving names.

Blame yourself

“The expropriation of Carlsberg and Danone serves those two companies right for not having had a clean exit, as they should have back in 2022,” insists Professor Jeffrey A Sonnenfeld from the Yale School of Management. His team keeps the “Yale List of Shame”, which rates international companies on their activities in Russia.

Quoted by the website just-drinks.com on 19 July, Mr Sonnenfeld opined: “[Carlsberg and Danone] stayed on too long. They were trying to be clever.” […] “Carlsberg was even more cynical than Danone,” Mr Sonnenfeld added, “since it pledged to leave Russia early on into the invasion. It was a poster child of early-mover courage and conscience but six months later it had nothing to show for it. After public criticism, it reconsidered again and was close to selling but was then expropriated by Putin.”

Only 8 percent of foreign companies have exited Russia

Carlsberg was not alone in postponing its ultimate exit again and again. According to recent data collected by the Kyiv School of Economics, out of 3,350 large foreign companies operating in Russia before the invasion of Ukraine, only 255 have pulled out completely. Some 1,200 have reduced their activities, while 500 refrain from making further investments. However, a total of 1,360 firms, mainly from China, decided to dig in.