Russian state agency takes over Danone Russia shares as CPG giant prepares to ‘protect its rights’

In a statement released Sunday, July 16, Danone said it had been informed that the Russian authorities are aiming to place Danone Russia under the temporary external administration of the Federal Agency for State Property Management, a sub-division of the Russian Ministry of Economic Development that manages Russia's federal state property. “Danone is currently investigating the situation,” said the company. “Danone is preparing to take all necessary measures to protect its rights as shareholder of Danone Russia, and the continuity of the operations of the business in the interest of all stakeholders, in particular its employees.”

Danone had been in the process of transferring the control of its Essential Dairy and Plant-based business in Russia, a transaction that was estimated to result in a €1bn/$1.12bn write-off. That process was launched on October 14, 2022 and was ‘progressing according to the expected schedule’ according to the company. But in practice, the Russian state's move could mean that Danone's exit from the market could come much sooner.

Why has Russia done this?

Russian authorities have toyed with the idea of introducing legislation that would allow Kremlin to take control over Russian assets linked with ‘unfriendly foreign states’ since the start of the Ukraine war.

But in April 2023, president Vladimir Putin signed decree no. 302, which enabled federal agencies, such as the one mentioned by Danone, to seize Russian assets owned by businesses from ‘unfriendly foreign states’ or their Russian divisions. This includes countries that have sanctioned Russia for its invasion in Ukraine, such as all EU member states as well as the US, Canada, Australia, New Zealand, Japan and South Korea. 

Once an asset is seized, the federal agency can exercise full powers over it, besides the right to dispose of it. The decree specifically targets assets owned or controlled by ‘unfriendly’ states on Russian territory and is seen as a retaliatory, as only president Putin can decide when the ‘temporary external management’ would cease to apply.

According to the decree, the Russian authorities can take over foreign-owned assets under a wide scope of triggers – so called pre-conditions – such as if there’s a perceived threat that Russian-owned assets in an ‘unfriendly foreign state’ could be seized or frozen.

Danone is not the only firm to have seen its Russian assets placed under temporary external management. Brewing company Baltika Breweries, owned by Carlsberg, also saw its shares transferred to the same federal agency earlier this week, as revealed in an executive order published by the Kremlin​.

Carlsberg said the change to Baltika’s management was made ‘without the knowledge or approval’ of the Group and that it’s ‘unclear’ what the implications of this development would be for the Russian-based firm’s operations. Similarly to Danone, Carlsberg had been in a process of selling its Russian business subject to regulatory approvals.

The news is likely to shine a light on the precarious situation that Western companies with presence in Russia are facing. According to LeaveRussia.org, a project lead by the Kyiv School of Economics Institute and Ukrainian IT volunteers that compiles a database of the movements of western companies with Russian operations, there are at least 29 FMCG and 65 food and beverage firms that continue to do business with Russia. This includes Nestlé, Unilever, Mondelez, Lactalis, and Savencia.