Danone may keep a stake in Russian business

03-03-2023 | Market trends | News

Danone may sell 13 dairy plants it ran in Russia before it decided to suspend operation in October 2022. Photo: Canva

Several Russian food companies expressed interest in acquiring the Danone business in the country, including Russia’s largest meat producer, Cherkizovo, and the biggest dairy company, EkoNiva, the Russian newspaper Kommersant reported, citing anonymous sources in the market.

Danone may sell 13 dairy plants it ran in Russia before it decided to suspend operations in October 2022. The company wants to sell at least 75% of its Russian business, but not 100%, in order to retain a seat on the board of directors. Danone also wants to include a buyback option as a mandatory term of the deal, Kommersant said.

The buyback option could make the company’s withdrawal from Russia more complicated. Dmitry Gabishev, managing partner of Moscow-based think tank Peregrine Capital, expressed that this part of the selloff could seriously limit the number of potential buyers.

Danone has declined to comment.

Market to feel an impact

In addition, Danone wants to pass only Russian brands to the new owner. This includes Prostokvashino, Rastishka and Tyoma. International brands, including Activia, Actimel, and Oikos, will not be allowed to be sold in Russia.

The Prostokvashino brand is unlikely to suffer from a change in ownership as it has a strong position in the Russian dairy market, said Alexei Gruzdev, CEO of the Russian research firm Streda Consulting. On the other hand, the prohibition of using Activia and Actimel brands could have a serious impact since they provided a significant share of sales, Gruzdev added.

Danone used to be the second-largest dairy company in Russia, processing 3,400 tonnes of raw milk daily. The company holds the leading position in several segments of the Russian dairy market, including fermented dairy products.

In January, Alexander Petrikov, head of the All-Russian Institute of Agrarian Problems and Informatics, stated that Danone business in Russia should not be sold in parts. He warned that if all dairy plants are sold one by one, it will destroy Danone’s ecosystem and hurt Russia’s entire dairy market.

“It is difficult to estimate the resulting reputational losses. They will inevitably arise not for buyers but also numerous Russian partners of the corporation – raw milk and other input suppliers, universities and research institutes with which Danone has established partnerships,” Petrikov said.