Companies have struggled to figure out how to exit in a way that limits the financial impact, does not put employees at risk and, in some cases, offers the possibility of returning in the future.
Finnish coffee shop owner Rolf Ladau was one of the first to take the plunge.
When Western governments began imposing sanctions on Russia following its invasion of Ukraine in late February, Paulig’s CEO realized that the coffee roasting business was no longer viable.
Coffee was not on the sanctions list, but it was nearly impossible to get grain into Russia as freight companies stopped shipping goods to and from the country. Paying in rubles was becoming more and more difficult.
Two weeks into the dispute, Ladau decided that Paulig was going to leave, and two months later he did what usually takes up to a year – finding a suitable buyer and sealing a deal. In May, Paulig sold its Russian business to Indian private investor Vikas Soi.
More than a thousand Western companies have joined the corporate exodus from Russia – unprecedented in its scale and speed – as they scramble to comply with sanctions and in the face of threats of retaliation from the Kremlin.
But Paulig is one of a relatively small number of companies that have sold their assets or handed over the keys to local managers. A Reuters tally shows fewer than 40 companies, including McDonald’s, Socit Generale and Renault, have announced deals.
Interviews with half a dozen executives at companies who have divested assets show the complexity and uncertainty of selling quickly and at deep discounts – and why it can take so long.
The obstacles are enormous: confusion reigns over what the Kremlin would allow foreign companies to do; staff nervous after threats of government reprisals; sanctions have limited the number of buyers and there is little time to verify them; selling prices have been greatly reduced; and negotiations are done virtually because fear of reprisals makes it too risky to travel to Russia in person.
As Moscow prepares a new law which should come into force soon and which will allow it to take control of the local activities of Western companies that decide to leave, the stakes are becoming higher and higher.
“If you haven’t started the process yet or if you still have doubts about it, then it’s going to get harder,” Ladau told Reuters, speaking ahead of Putin’s crackdown on the oil and gas project. of Sakhalin.
“Russia has no interest in letting foreign companies easily exit the market.”
NO PORTRAIT-PROBOT
Many Western companies have encountered problems trying to leave.
Burger King ended corporate support for its outlets in Russia in March, but the fast food chain’s roughly 800 restaurants are still open. Part of the problem, lawyers say, is the complexity of its joint-venture type franchise agreement.
UniCredit sold some assets through swaps but had to widen the search for potential buyers from countries such as India, Turkey and China.
Four months later, there is no indication that the companies have found a plan to get out of it.
Renault sold its share of a lucrative joint venture to the Russian state for one rouble; McDonald’s cd 800 branches to a Siberian businessman for a token sum; both agreed to buyout clauses.
SocGen has sold its Rosbank Interros Capital unit, a company linked to Russian oligarch Vladimir Potanin.
Many gave the keys to local managers. Almost all of them recorded heavy write-downs totaling tens of billions of dollars.
Ladau has spoken out against a buyout clause.
“The moral and ethical issues are so serious that we have no possibility of returning to Russia,” he said.
According to experts, the task will be difficult for the new owners in an increasingly isolated Russia without access to Western products. The cost of everything from food to energy is skyrocketing and the economy has plunged into recession.
Nonetheless, the departures have been an unexpected boon for businesses and entrepreneurs in Russia and non-sanctioned countries as they grab valuable assets for a bargain.
NO BANKERS
One aspect of the exodus highlights its unusual nature: the absence of bankers who would normally play a key role in transactions.
According to some sources, banks have been on the sidelines due to fears of sanctions violations.
Instead, companies rely on lawyers in Russia and international consultants familiar with the country to find and vet suitors – making sure they’re legitimate, off the lists of sanctions and that they have the necessary financial references.
The private Finnish food company Fazer signed an agreement in April, selling its Russian bakery business to Moscow rival Kolomenskij Bakery and Confectionery Holding.
The speed belies the complications.
At first, Russia threatened to ban the exits of foreign companies listed on the stock exchange. When the company asked for clarification, its local legal advisers said it may have been a mistake.
The rules could change at any time.
“So everyone was in a terrible rush,” said Sebastian Jagerhorn, head of legal and compliance.
Lara Saulo, who runs the bakery, said even advisers in Russia gave conflicting advice along the way.
Putin’s crackdown on Sakhalin on Thursday was clearer.
“Soon they will fight back, not just with gas, but in other ways,” said a senior executive whose company is struggling to get out of this.