(Sept 18): Russia took control of the local businesses of Swiss food giant Nestle SA and French supermarket chain Auchan in the Kremlin’s largest takeover of foreign corporate assets since at least 2024 amid rising tensions with Europe.
President Vladimir Putin ordered their stakes in Russian businesses placed under temporary administration by a company called AO L.E.V. Menedzhment, according to a decree published late Thursday on the country’s official legal portal.
That company was registered in Moscow in 2024 with charter capital of just 15,000 rubles (US$177 or RM724.52) and a single employee, according to Russian registry data. It had little public profile before the decree.
Shares of Nestle fell as much as 1.9% in early trading on Friday, hitting a three-month low before slightly paring back.
The Kremlin’s surprise action against Nestle and Auchan highlights the increasingly difficult business environment faced by international companies that remain in Russia. More than a thousand businesses left the country after Putin ordered the full-scale invasion of Ukraine in 2022 and Moscow was hit with multiple rounds of international sanctions. Still, many major names including PepsiCo Inc, Mondelez International Inc and Raiffeisen Bank International AG continue to operate in Russia under growing restrictions, although have scaled back their operations.
Nestle said in a statement Friday that it took note of Putin’s decree and was assessing the situation and its options. “Nestle is committed to taking all necessary steps to protect its rights and ensure continuity of business operations in the interests of all stakeholders, particularly its employees,” it said.
Auchan Retail Russia said it had requested clarification of the decree and would provide a more detailed response once it has received the relevant information, the company told the state-run Tass news service.
Russia has taken over dozens of international assets since 2023, when it amended legislation to create a temporary management mechanism allowing the state to seize control of holdings owned by companies from countries it considers “unfriendly”. They include the local units of Finnish utility Fortum Oyj, French yogurt maker Danone SA and Danish brewer Carlsberg A/S.
Orders for temporary management have often been followed by transfers of assets to Russian buyers approved by the authorities, many of them with links to the Kremlin. Danone and Carlsberg had their assets briefly returned to them, but were then required to sell them to Russian companies at big discounts.
The Kremlin has also made it increasingly difficult for foreign companies to leave Russia. Transactions involving investors from “unfriendly” countries require sellers to accept a discount of at least 60% and there is also a special exit tax.
In August, Putin signed a law allowing Russian courts to block foreign investors that left the country after the 2022 invasion of Ukraine from buying back assets they had sold. He has repeatedly said that reentering the Russian market will be difficult.
Still, his late-night decree on Nestle and Auchan was unexpected. The Kremlin hadn’t used the mechanism against assets of comparable value since at least 2024, when plants belonging to AB InBev Efes, a joint venture between Belgian brewer AB InBev and Türkiye’s Anadolu Efes, were placed under temporary management.
Nestle has operated in Russia since the 1990s but scaled back its business after 2022, suspending some brands and halting non-essential imports and exports, as well as advertising and capital investment. The Swiss food giant has six plants in Russia, employing more than 7,000 people, where it continued to produce what it described as essential and everyday food products.
Russia accounts for about 2% of Nestle’s global sales, equivalent to roughly two billion Swiss francs (US$2.5 billion or RM9.9 billion) annually.
Losing control of its Russian assets could amount to a write-off of about one billion Swiss francs, according to analysts led by David Hayes at Jefferies.
Nestle’s response to Putin’s order is “non committal” so far, though the precedents of Danone and Carlsberg aren’t encouraging, said Warren Ackerman an analyst at Barclays. “We read the decree as a step towards a potential ownership change, though timing, process and compensation are unknown,” he added.
Switzerland mirrored European Union sanctions on Russia in 2022 over the war in Ukraine, breaking with its previous approach to neutrality. The move prompted an initiative to impose a stricter interpretation of the country’s traditional doctrine, which voters will decide on this Sunday.
Russia has publicly weighed in on the campaign in favour of tighter neutrality. Approval would bar Switzerland from imposing sanctions on belligerents without UN backing, meaning the country could no longer maintain its current Russia measures on the same basis.
Auchan was among the early wave of major Western consumer businesses to expand into Russia, opening its first store there in 2002. The company went on to build a sprawling network of stores, and now operates 230 supermarkets and hypermarkets across the country, according to its website.
Earlier this year, a little-known company, KS Logistics, asked Putin to place Nestle’s local entities under temporary management, the Kommersant newspaper reported, a move that could potentially pave the way for a change in ownership. Nestle told the outlet then it hadn’t received any inquiries from Russian authorities and that its offices and factories continued to operate.
It is not clear whether KS Logistics has any connection to L.E.V. Menedzhment. The latter appointed Andrey Krayushkin as its new chief executive officer just last week, according to Russian registry data.
Krayushkin served until at least 2020 as first deputy head of the Interior Ministry’s migration department and held the rank of major general, Russian opposition outlet Novaya Gazeta Europe reported Thursday, citing databases it said were in its possession. Bloomberg couldn’t independently verify the claim.
Uploaded by Chng Shear Lane