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Here comes Russia’s corporate hit list


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Companies have had 558 days since the Ukraine invasion to figure out a way to exit Russia. For those that haven’t, time may be running out.

Russia is likely to publish a list of businesses from “unfriendly countries” early in September, Jocelyn Spottiswoode, of business intelligence consultancy Alaco, told an investor meeting organised by Barclays. Those named on the list will be at risk of expropriation, the bank told clients.

Yale School of Management lists more than 200 companies that are still operating as normal in Russia, as well as another 300 that have been buying time with partial measures. Many, if not most, look like potential targets for nationalisation.

According to Spottiswoode, Russia’s corporate hit list is likely to include any entity that has 4,000 or more employees, or whose revenues exceed $825mn, or whose assets that exceed $1.65bn. Whether these thresholds will relate solely to Russia-based operations is not clear.

Her remarks come after the FT reported in June that Vladimir Putin was drawing up new legislation to give the Russian state priority rights to buy any western asset for sale at a “significant discount”.

Foreign-owned commodity groups will be most at risk of expatriation in the months ahead, with technology companies less vulnerable due to their operational complexity, Barclays said.

An additional risk for consumer staples makers is the high value the Russian public puts on western brands, which make JDE Peet’s coffee and the Unilever Cornetto prize assets for state redistribution.

In July, the Russia seized local operations from Danone and Carlsberg by presidential decree, even though both companies were finalising sales to local buyers. Why the Kremlin intervened is not known. Maybe it didn’t like the deals, or perhaps allies of Vladimir Putin were owed a reward following the invasion and the failed coup and fancied the idea of owning a brewery or a yoghurt factory, said Barclays.

“Putin’s objective is to do everything possible to prevent the economy from collapsing in Russia and to placate Russian oligarchs who are frustrated with the economic situation,” Barclays’ consumer staples team in a note published Monday. “Ensuring everyone is happy and the Russian economy does not collapse are the priorities.”

Here’s its list of prime targets, with those in breach of the expected criteria marked red:

Of those names, Unilever is perhaps the most contentious. Unilever’s new CEO, Hein Schumacher, has said the “least bad” option for the moment is to stay in Russia, with limits applied to product imports and exports. The company employs around 3,000 people in Russia, last year paid £30mn in corporate taxes to the Kremlin, and has acquiesced to Moscow’s order that its employees can be conscripted.

Nestlé, which has around 7,000 people in Russia, has adopted an almost identical strategy to Unilever. Of the rest, most have shrunk local operations but only a few have promised a full exit. Heineken last week agreed to sell its Russian breweries to Arnest for €1. British American Tobacco has been working for 18 months on a deal to offload its Russian operations to a local partner, while Philip Morris International has failed to figure out an exit route. Coca-Cola HBC (CCH) — for whom Russia accounts for about 12 per cent of revenue — has renamed the local division Multon Partners and sells brands including Dobry, a lookalike cola.

Companies wanting to exit Russia have since December been required to accept a discount of at least 50 per cent of the Kremlin-supplied market value and make a “voluntary” contribution of 5-10 per cent of the deal price to the government. The criteria are likely to be toughened even further, Spottiswoode said: state fees are likely be made mandatory and priority will be given to buyers in Russia, China and India.

On the day Russia seized control of their operations, Carlsberg shares fell 1.8 per cent and Danone was down just 0.7 per cent, with both stocks more than recovering within the week. No company wants to be seen to surrender. But investors appear to have written off Russian exposure, even when managements have not, so for them a strategy of dithering followed by compulsory expropriation may have already become the least bad solution.

Further reading:
European companies suffer €100bn hit from Russia operations (FT)
Russia moves to seize ‘naughty’ western companies



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