Shares of Danone and Carlsberg in Russian companies transferred to the state

Major players in the dairy and brewing market of the Russian Federation, controlled by Western investors, are coming under the control of the state. President Vladimir Putin transferred shares in the Russian structures of Danone and the Carlsberg Group-owned brewing company Baltika to the temporary management of the Federal Property Management Agency. Both companies were preparing to sell local businesses, and Carlsberg even signed an agreement with an unnamed buyer. The measure will not only suspend these transactions, but may also pause all M&A involving foreigners, experts say.

Shares in the structure of dairy products manufacturer Danone Danone Russia JSC and brewing company Baltika owned by Carlsberg Group were transferred to the temporary management of the Federal Property Management Agency. Corresponding decree President Vladimir Putin signed on 16 July. The Federal Property Management Agency promptly did not respond to Kommersant. Danone and Carlsberg did not provide comments on Sunday.

Both companies have already announced their intention to reduce their presence in Russia. Danone announced handing over control of the dairy and plant-based beverages business in October 2022. The deal could include 13 factories producing traditional dairy products, yoghurts and desserts. And Carlsberg Group at the end of June announced on the completion of the search for an investor for Baltika and the signing of an agreement with the future owner of the assets. Baltika operates eight plants producing more than 50 brands, including Baltika, Don, Arsenalnoe, Zatecky Gus, and others.

Danone and Baltika are among the largest players in their markets in Russia.

In the latest rating by Milknews, Soyuzmolok and Streda Consulting, Danone ranks first among milk processors with revenues of RUB 122.7 billion. for 2021 against 107.8 billion rubles. from the nearest competitor Wimm-Bill-Dann (part of PepsiCo).

Baltika, according to Kommersant’s data, produced 197.42 million decaliters of beer and beer drinks in 2022. This corresponds to the second place in Russia after AB InBev Efes (223.29 mln decaliters, Stariy Melnik iz keg, Lowenbrau, Hoegaarden, Velkopopovicky Kozel, etc. brands). Heineken United Brewery came in third with 93.65 million decalitres of product.

Under the temporary control of the Federal Property Management Agency translated generating companies Fortum and Unipro, owned by the Finnish Fortum and the German Uniper, respectively.

According to a Kommersant source in investment circles, the transfer of the Russian companies Danone and Carlsberg to the Federal Property Management Agency may be related to the desire of the Russian authorities to prevent the withdrawal of large sums from the sale of assets abroad, which could affect the ruble exchange rate. In his opinion, the introduction of state administration can now be considered in other structures of large foreign companies selling business in the Russian Federation. Another interlocutor of Kommersant notes that all M&A transactions involving foreigners are likely to pause. The sale of the business, in particular, was planned by the Dutch concern Heineken, which owns the Heineken United Brewery.

Rustam Kurmaev, managing partner of the law firm Rustam Kurmaev & Partners, says that the primary task of the Federal Property Management Agency as an interim manager will be to ensure the safety of assets.

Options for further action – the sale of the business or the preservation of companies in public administration – remains open, the lawyer notes.

Independent expert Alexei Nebolsin says that the arrival of the state in the management of Baltika is likely to complicate competition for other market participants. On the other hand, he notes, Baltika, in its new capacity, is unlikely to be able to continue its previous work in the Association of Beer, Malt and Beverage Producers (APP) along with foreign AB InBev Efes and Heineken United Breweries, and therefore, the lobbying opportunities of APP may weaken.

In the dairy market, notes a Kommersant source among producers, Danone’s share is far from dominant, so it is hardly worth waiting for the impact of the transition of companies under state control to competition. As Kommersant’s interlocutor notes, a lot will depend on what competencies the Federal Property Management Agency has in terms of managing food companies.

Anatoly Kostyrev