The shares and assets of Carlsberg’s Baltika Brewing and Danone Russia JSC will be transferred to Russia’s Federal Property Management Agency for “temporary management”, according to the decree by President Vladimir Putin.
“It is one thing for Putin to criticise Western firms for pulling out from Russia, as he did at the beginning of his war in Ukraine, but quite another for him to expropriate foreign firms’ assets without compensation,” says Harry Broadman, chair of emerging markets practise at Berkeley Research Group.
This tactic is not new. As early as March 2022, just a month after Russia’s invasion of Ukraine, the Kremlin approved a law that allowed the government to nationalise the property of foreign companies. This was followed by more concrete legislation in April 2023, which saw Putin sign a decree allowing for temporary state control over the assets of companies or individuals from unfriendly states – which include the US and its allies – in response to similar moves, or the threat of them, by those countries. Days after this, Russia took control of utilities owned by Finland’s Fortum Oyj and Germany’s Uniper.
A poetic fate for companies that never left Russia
“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,” says Professor Jeffrey A Sonnenfeld from the Yale School of Management. “They stayed on too long. They were trying to be clever. Danone paid lip service to being critical of the war, but then stayed there with perhaps half its business. It claimed to only keep its dairy business in Russia, but what else does Danone do? It doesn’t do automobiles, clothing or jewellery. It is a dairy and yoghurt maker.
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“Carlsberg was even more cynical than Danone, 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.”
Danone had also been trying to leave Russia in recent months. Too little, too late, critics argue. Carlsberg and Danone flew too close to the sun – and hundreds more may get burned.
“Putin is punishing companies that are now trying to leave, but it looks like he is going for high-profile consumer brands in Europe that have been vacillating due to low-conviction and morally ambiguous leaders,” says Sonnenfeld. “There are some 400 companies that are still fully operating in Russia. They are next. So we may very well soon see a stampede trying to leave.”
On the other hand, the seizure of Danone and Carlsberg may lead some companies to abandon any efforts to leave, thereby appeasing Putin (but at the cost of further alienating the anti-Putin ‘international community’). Companies such as Mondelez, Nestlé and Coca-Cola will be particularly nervous, given how exposed they are to the Russian market, comparatively speaking.
Meanwhile, Putin is threatening that he is going to add additional tax burdens on European companies still operating in Russia, because he wants to further punish the EU.
“This is insane economic self-destruction, but I hope he does it, of course, because that is only going to drive out those cowardly companies still operating in Russia,” says Sonnenfeld. “Economically, Putin only survives by cannibalising his own economy, by throwing in the living room furniture to keep the furnace of war going. He is receiving no direct investment. Global multinationals were a significant part of the Russian economy before the war. Now they are largely gone.”
Putin’s expropriation of Danone and Carlsberg makes little sense if he is interested in attracting foreign investment to rebuild the Russian economy in the post-war era, argues Broadman. “It raises the question: what will be the economic future of Russia?” The question weighs heavy.