5 mins read
A new cohort of Russian business elite has emerged to benefit from the void left when international firms suddenly exited following President Vladimir Putin’s invasion of Ukraine.
The latest wave of entrepreneurs to seize their chance have snapped up assets at discounted prices after the war prompted multinationals to leave because of pressure from sanctions and their own investors.
Fast food giant McDonald’s Corp., packaging group Ball Corp. and chemicals maker Henkel AG are among the companies that have sold businesses worth at least $21 billion in 2022 and the first half of this year, according to an estimate from AK&M news and research agency.
In an example of how the war is reshaping Russia’s business world, the buyers don’t come from the ranks of the country’s wealthiest and most aren’t well-known outside the country. They’ve been in business for decades, in some cases at the operations they purchased and in several cases alongside famous billionaires. And unlike most of the old guard, they haven’t been put on US or EU sanctions lists.
The tycoons are beneficiaries of Russia turning further inward in the latest wave of asset re-distribution. The original oligarchs built their wealth from resources and banking more than three decades ago after the collapse of the Soviet Union. They were largely replaced by a group who made their fortunes under Putin.
Some of the most expensive deals with foreign companies that left Russia
Ivan Tavrin, the former head of a Russian mobile firm and former partner of billionaire Alisher Usmanov, recently spent more than $2 billion on Prosus NV’s local classifieds business Avito. He’s bought other assets as well, making him the largest wartime dealmaker so far.
Alexey Sagal’s Arnest Group was focused on perfume and cosmetics before picking up Ball’s drinks packaging assets in September last year and then acquired Heineken NV’s Russian operations, including seven breweries, for 1 euro in August this year.
Sagal’s wife Elena used to be the general director of Arnest, before serving as a senator in upper chamber of parliament for several years through 2012 as a member of the ruling party.
Alexander Govor was among the early dealmakers to pounce when foreign companies started to leave, purchasing the Russian business of McDonald’s in May last year and packaging plants in September. While Govor was an existing franchisee partner of the fast-food chain, buying the entire network of 850 Russian restaurants was a big step from operating just 25.
Govor’s fortune stems from his holding in Yuzhkuzbassugol, one of Russia’s biggest coking coal producers. He exited in 2007 after two deadly mine explosions, selling out to Evraz, the steelmaker part-owned by billionaire Roman Abramovich. Years later, the businessman became a McDonald’s franchisee partner.
Elsewhere, local management led by Timur Gabidullin bought Sylvamo Corp.’s pulp and paper mill.
Spokespeople for Govor, Tavrin, Sagal and Gabidullin didn’t respond to requests seeking comments.
Still, some established tycoons also managed to benefit from the exodus of international firms. Before Vladimir Potanin, Russia’s richest person, was sanctioned by the US and the UK, he bought Rosbank PJSC from Societe Generale SA. Unsanctioned billionaire Andrey Komarov bought three Russian factories from global packaging firm Amcor Plc for about 370 million euros ($395 million).
There have also been asset seizures that rewarded people close to power. This summer, the government took control of the local subsidiaries of Danone SA and Carlsberg A/S and appointed Putin’s allies to lead them.
Restrictions on anyone wishing to sell Russian businesses are further playing into the hands of new buyers.
In 2022, the Kremlin banned foreign investors from selling Russian assets without approval from a special government commission and ordered assets to be sold at a discount of at least 50% of market value as the nation sought to discourage a stampede of foreign companies out of the country.
Under rules introduced earlier this year, businesses seeking to sell their Russian assets now face a mandatory contribution to the budget even if they offload them for a symbolic sum or for free.
When locals buy out foreign-held assets, the concern is that they are trying to capture high-markup markets that were previously hard to enter, said Alexander Isakov of Bloomberg Economics.
“There’s usually little space for scaling up output, thus little incentive to invest or to attract capital,” Isakov said. “Ultimately, we expect the buyouts to lead to higher market concentration, an increase in corporate profit rates, but a decline in productivity and investment growth.”
With assistance from Patrick Winters
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