THE BELL WEEKLY: Why the nationalization of Danone and Carlsberg matters

President Vladimir Putin has recently signed a decree nationalizing the Russian assets of French dairy producer Danone and the Baltika brewery, owned by Denmark's Carlsberg. One of them is now under the ownership of an old friend of Putin’s from 1990s St. Petersburg, while the other went to a relative of Chechen leader Ramzan Kadyrov. It might seem unsurprising that the Russian state expropriates assets in favor of its own people. However, this news is bigger than it might appear. Here are four reasons why:

1. This is the first expropriation of assets that the Kremlin is not trying to present as a response to Western activities

For the first 18 months of the war, the Russian authorities took a cautious approach to nationalizing the assets of Western companies.

• Shortly after Russia invaded Ukraine, shares held by non-residents on Russia’s stock exchanges were frozen, and their dividends were locked up in escrow accounts. However, this happened after Western exchanges did the same thing to Russian shareholders. Moreover, this is not irreversible: for example, investors in the Magnit retail change seemed to get their money back, albeit at a discount.
• By the fall of 2022, Putin took the big step of banning foreign companies from selling their Russian assets without state permission. This already looked closer to indiscriminate nationalization. If you cannot freely sell your business, it is no longer your business. But the assets were not taken away, and it was still possible to obtain the necessary permit.
• In April 2023, Putin signed a decree that enabled the state to take over the management of any asset owned by a company from an “unfriendly” nation. However, even this step could still be described as mirroring Germany’s moves to take over the assets of Gazprom Germania and Rosneft. In both cases, energy provision was at the heart of the matter, something that is of strategic importance to all countries. And the first nationalized assets belonged to Russian subsidiaries of Finland’s Fortum and Germany’s Uniper, both of which are state-owned.

However, with Danone and Baltika, none of these circumstances apply. Both companies manufacture non-strategic consumer goods. Neither is state-owned, both are held by private investors (1, 2). Neither Denmark (the home of Carlsberg) nor France (Danone) has nationalized any Russian assets. The most telling detail is their new ownership: if the Russian assets of Fortum and Uniper ultimately came under Rosneft’s control, the new owners of Baltika and Danone leave no doubt that this is simply distributing the pork barrel among Putin’s circle.

2. Danone and Carlsberg were exemplary foreign investors

We don’t know why Carlsberg and Danone were singled out. Not only had these companies worked and invested in Russia for a long time, they also were reluctant to leave the country. These companies played a crucial role in the development of Russia's consumer economy, with Russia being the largest market for both until 2014.

• Danone launched production in Russian factories under its own brand back in 1994 and opened its first Russian plant in 2000. By 2022, the French company owned 13 Russian factories. Danone, along with America’s PepsiCo, were the undisputed leaders of Russia’s dairy market, three or four times bigger than the closest competitor. Until the annexation of Crimea in 2014, Russia was Danone’s largest national market: it generated 11% of the group’s sales, compared with 10% in its native France.
• Baltika was the first major Russian consumer company to come under foreign ownership. That was back in 1993 in a deal approved by Putin, who was deputy mayor of St. Petersburg at the time. Carlsberg acquired Baltika in 2000. From 1996-2020 the brewery was the undisputed leader in Russia’s beer market, bringing Carlsberg 40% of its global operating profits. In 2014, the Danes reported that they had invested $13 billion in Russia during their time operating in the country.

The fact that Russia chose these companies for its first demonstration of the new expropriations can be read as a signal: if the state is willing to seize assets from these two companies, then no foreign investor is safe.

3. For the first time, Putin has publicly handed Kadyrov a major, well-known business

The most striking aspect of the recent nationalization is the transfer of Danone’s Russian assets to the management of Kadyrov’s clan. The Chechen leader’s nephew, who is also the republic of Chechnya's agriculture minister, took charge of the company within two days of Putin’s decree.

The relationship between Putin and Kadyrov was always simple. Kadyrov used brutal repression to ensure Chechnya’s loyalty, and in return, he was allowed to help himself to the federal budget funds allocated to his republic. According to Kadyrov himself, Moscow subsidizes Chechnya to the tune of 300 billion rubles ($3.3 billion) a year.

At the same time, Kadyrov’s militants, officially registered as police, are free to indulge in racketeering in Chechnya and beyond — all with the blessing of their boss. Up to now, though, the businesses that fell into the orbit of Chechnya’s security forces were neither large-scale nor well-known: real estate in Moscow, small metallurgical plants, and other assets in the regions. It was impossible to imagine that a major, well-known company — especially one owned by a Western organization — might openly be placed under a Chechen roof.

People who spoke to The Bell immediately after the nationalization unanimously viewed the handover of Danone Rossiya as a reward for loyalty following Yevgeny Prigozhin’s rebellion. It suggests a change in Putin’s priorities — before the war, he would never have transferred a large, socially visible business to people who lacked the means to manage it.

4. Baltika’s new management is closely linked to Putin and his friends

With the transfer of Danone Rossiya to Kadyrov’s cronies, there was far less attention paid to Baltika’s new owner, Taimiraz Bolloyev. That’s not surprising: Bolloyev has been here before, running Baltika from 1991-2004. He hardly came from out of nowhere. Nonetheless, the real reason he was handed control of Carlsberg’s assets lies elsewhere.

Although he never owned the company, most people two decades ago would have said he was Baltika’s key leader. In 1991 Bolloyev, a brewer by profession, became the first director of Leningrad’s new brewery, a long-term Soviet project that started construction back in 1978. Bolloyev continued to manage the firm until 2004, when, according to one account, Western shareholders wanted to get rid of an overly influential director general.

In his time as the boss of one of St. Petersburg’s largest companies, Bolloyev was able to build a relationship with Putin as well as the president’s inner circle in Russia’s northern capital. That circle now comprises Russia’s most influential individuals. “More than once we met informally, ate together, drank beer,” Bolloyev said of Putin in 2000. Both were fond of judo and in the early 2000s, Bolloyev joined Putin and billionaire Arkady Rotenberg in establishing the Yavara-Neva judo club, where Putin’s childhood coach Anatoly Rakhlin worked. Bolloyev also has a joint business with Putin’s closest friend and adviser, the banker and media magnate Yury Kovalchuk. Bolloyev owns a 10% stake in Gelendzhik Airport, with Kovalchuk’s Rossiya Bank holding a further 40%.

His friendships with influential people helped Bolloyev to prosper after his departure from Baltika. In the late 2000s, he established the BTK clothing company, which became the main supplier of uniforms to the Russian military. In the early 2010s, he headed Olimpstroi, which built several components of the infrastructure for the 2014 Sochi Winter Olympics. In 2020, Bolloyev purchased a grain business from the state-owned VTB bank.

There are several theories about whose interests Bolloyev will support at Baltika. The Financial Times cited sources as saying he will represent Kovalchuk’s interests. The Bell’s sources suggested that Rotenberg could be the power behind the throne. We will likely know more when we see the new management’s first moves.

Why the world should care

As the war in Ukraine drags on, Russia faces increasing sanctions, posing a higher risk of nationalization for other foreign companies with assets in the country. According to the Kyiv School of Economics, more than 1,000 foreign companies still hold assets in Russia. It’s hard to say who is next, but we can assume that the Kremlin will not be guided purely by geopolitical motives. Instead, strategic importance within Russia's economy and alignment with new owners could also play crucial roles in determining future targets.