Companies are grappling with how to exit in ways that limit the financial impact, don’t put workers at risk and, in some cases, offer the opportunity to return in the future. Finnish coffee boss Rolf Ladau was one of the first to move. Sign up now for FREE unlimited access to Reuters.com Register When Western governments began imposing sanctions on Russia after its invasion of Ukraine in late February, Paulig’s CEO realized that the coffee roasting business there was no longer viable. Coffee was not on the sanctions lists, but it was almost impossible to get beans into Russia as freight companies stopped shipping to and from the country. Paying in rubles became more and more difficult. Two weeks after the crash, Ladau decided Paulig would leave, and two months later he did what usually takes up to a year – find a suitable buyer and close a deal. In May, Paulig sold its Russian business to private Indian investor Vikas Soi. More than a thousand Western companies have joined a corporate exodus from Russia – unprecedented in scale and speed – as they scramble to comply with sanctions and amid threats of retaliation from the Kremlin. But Paulig is one of a relatively small number who have sold assets or handed over the keys to local managers. A Reuters tally shows fewer than 40, including McDonald’s ( MCD.N ), Societe Generale ( SOGN.PA ) and Renault ( RENA.PA ), have announced deals. Interviews with a half-dozen executives at companies that have divested assets show the complexity and uncertainty of selling at speed and at huge discounts — and why it can take so long. The hurdles are huge: confusion has swirled over what the Kremlin would allow foreign companies to do. Staff nervous after government threats of retaliation. Sanctions have limited the pool of buyers and there is little time to control them. Selling prices have dropped significantly. And negotiations are taking place essentially because fears of retaliation make it too dangerous to visit Russia in person. With Moscow preparing a new law expected to take effect soon, allowing it to take control of the local operations of Western companies that decide to leave, the stakes are rising. “If you haven’t already started the process or if you still have doubts about it, then it will become more difficult,” Landau told Reuters, speaking before Putin took action on the Sakhalin oil and gas project. “Russia is not interested in letting foreign companies off the market easily.”
NO PLAN
Many Western companies ran into trouble trying to leave. Burger King stopped corporate support for its Russian stores in March, but the fast-food chain’s roughly 800 restaurants are still open. Lawyers say part of the problem is the complexity of the joint venture-style franchise agreement. UniCredit ( CRDI.MI ) has disposed of some assets through exchanges, but has had to widen its search for potential buyers to countries such as India, Turkey and China. read more Four months on, there are little signs the companies have come up with a plan to extricate themselves. Renault sold its stake in a lucrative joint venture to the Russian state for one rouble. McDonald’s handed over 800 branches to a Siberian businessman for a nominal sum. both have agreed buyback clauses. SocGen sold its Rosbank unit to Interros Capital, a company linked to Russian oligarch Vladimir Potanin. Many have given the keys to local managers. Almost all have taken heavy inventories totaling tens of billions of dollars. Ladau decided not to exercise a buyback clause. “The moral and ethical issues are so serious that we have no room to go back to Russia,” he said. Experts say it will be difficult for new owners in an increasingly isolated Russia without access to Western goods. The cost of everything from food to energy is skyrocketing and the economy has sunk into recession. But the exits have provided a windfall for companies and entrepreneurs in Russia and non-sanctioned countries as they snap up valuable assets for a deal.
NO BANKERS
One aspect of the exit underscores its unusual nature: the absence of bankers who would normally play a key role in deals. Sources say the banks have distanced themselves because of concerns about violating sanctions. Instead, companies rely on lawyers in Russia and international consultants with knowledge of the country to find and vet suitors – making sure they are legal, not on sanctions lists and have the financial credentials. Private Finnish food company Fazer inked a deal back in April selling its Russian bakery business to Moscow-based rival Kolomenskij Bakery and Confectionery Holding. Speed belies complications. Initially, Russia threatened to ban the exits of listed foreign companies. When the company asked for clarification, local legal counsel said it could have been a mistake. The rules could change at any time. “So everyone was in a terrible hurry,” said Sebastian Jagerhorn, head of legal affairs and compliance. Lara Saulo, who runs the bakery business, said even advisers in Russia gave conflicting advice along the way. Putin’s attack on Sakhalin on Thursday was clearer. “They will soon hit back, not just with natural gas, but in other ways,” said a senior executive whose company is struggling to break free. Sign up now for FREE unlimited access to Reuters.com Register Reporting by Essi Lehto and Anne Kauranen in Helsinki Additional reporting by Valentina Za in Milan Writing by Josephine Mason Editing by Mark Potter Our Standards: The Thomson Reuters Trust Principles.
