‘The
Financial Times,’ Danone, Baltika and how Russia is striking back
I have no
doubt that among readers of these pages there are those who wonder why I remain
a paying subscriber to the leading mainstream newspaper Financial Times given that so often I hold the paper up as an
example of how mainstream distorts news reporting to satisfy the anti-Putin,
anti-Russian bias of the editorial board.
The answer to that question lies in something
more valuable even than the amusement and distraction value to be found in the
Weekend edition, and particularly in the Lunch with the FT column, which is
very well written journalism. Amusement
used to justify my subscription to The
New York Times, but when recipes overran the space formerly given to book
reviews or travel reports, I cancelled it; there was no other redeeming virtue
to the daily. In the case of Financial
Times, that virtue lies in the occasional feature articles on a company or
industrial sector. Such was the case in two articles over the past week
directing in depth attention where almost no one else is looking. See “Kremlin oligarchs eye
Carlsberg assets as Kadyrov ally takes over Danone unit” by Max Seddon,
Anastasia Stognei and Adrienne Klasa.
The follow-on article was entitled “Trapped or nationalised:
walls close in on western businesses in Russia” by Max Seddon and Anastasia
Stognei. Subscribe to read | Financial Times
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These articles tell us a good deal about the nationalization
on 16 July of the major Russian production operations owned by French and Danish
mother companies. I take a special interest, because in my earlier careers as
country manager or consultant to very large European corporations setting up
business in Russia (1994-2000) then as incorporator of a translation company in
St Petersburg (2000-2004) I did some work for both of these concerns and
enjoyed an insider’s view of their activities.
For Danone, in 1997-1988 I performed business development
research to guide their planned entry into a dairy category which was unknown
to them (syrniki) but which could
serve as a useful platform for nationwide distribution because it went into the
daily lunch bag of nearly every child of school age in Russia. My work entailed
entering into talks on Danone’s behalf with a half-dozen Russian leading
Russian companies in this sector for the sake of co-production under the Danone
trade mark.
For Baltika, my company was performing translations into
English of all their press releases and of a great deal of marketing and
promotional material.
The FT articles I have cited give an anti-Putin spin to everything
they describe by withholding information that would have been easily procurable
and relevant, or by malicious defamation of key actors. I have found some of
the missing information in Wikipedia. Moreover, even without that extra step, I
have arrived at different overall conclusions about the significance of the
nationalizations by reordering the very points made by the authors that are
buried in the text and not brought to the opening or concluding
paragraphs. I believe this exercise is
important and should be shared with readers, because it demonstrates that often
you do not have to access alternative media to understand where the truth lies with
respect to the Russia-Ukraine war, but just have to pay attention to
contradictions within the reports of mainstream.
*****
To keep this analytical essay within manageable
size, I will here devote attention exclusively to Baltika, the company that I
knew best and longest as an insider, and the company about which the most
information is accessible in public sources (Wikipedia).
Baltika owns the country’s largest brewery, in St
Petersburg, and a string of smaller breweries across the whole of the Russian
Federation, with a daughter company in Baku, Azerbaijan. For most of the new
millennium and up to today, the company’s share of the Russian beer market is
over 35%.
The FT article speaks of Baltika as a Carlsberg property
but Carlsberg did not found or build Baltika: it had an interest in Baltika
from a partial ownership of the holding company Baltic Beverages Holding (BBH)
going back to the 1990s. I will not go into the whole story of BBH ownership,
but it is necessary to explain that there were companies of three Baltic region
countries which participated in its creation in 1991: Hartwall (Finland), Pripps (Sweden) and
Ringnes (Norway).
Though there is no mention of this in Wikipedia, to my
knowledge from promotional literature that passed through my hands, the Finnish
partner Hartwall was at the time the owner of Finland’s (and Russia’s) oldest
brewer, Synebrychoff. Judging by that company’s name (in Russian, Синебрюхов or
‘blue belly’), the Russian character of Baltika may be traced back to the
1820s.
The 1990s and early 2000s were a time of consolidation of
the global beer industry, and the owners of BBH were all subject to that
universal trend. One of the global survivors was Denmark’s Carlsberg which
bought out another part owner of BBH (Scottish & Newcastle, Britain) early
in the new millennium. Only in 2008 did Carlsberg take full control of Baltika.
At that time, Baltika was the fastest growing and most profitable of Carlsberg’s
operations worldwide.
The global economic crash of 2008 hit the Russian beer
brewing market just as the entire economy suffered a severe recession. Baltika
recovered in the ensuing years, but never again would be as profitable as at
the time of its acquisition by Carlsberg.
*****
As we all know, the “Putin regime” is run by avaricious
thieves who line their pockets at the public’s expense. As we all know, Putin
is irrational and his moves are unforeseeable.
These principles guide the opening sentences of the first
FT article on the nationalizations:
“Vladimir Putin ordered the seizure of Danone and Carlsberg’s
Russian operations after businessmen close to the Kremlin expressed an interest
in the assets, according to people close to the decision.”
We also find here the following:
“The Kovalchuk brothers, who are
among Putin’s closest confidants, had previously signaled their interest in
Baltika, which is based in their native St Petersburg, according to two people
familiar with the matter.”
An overview
of the nationalizations is set out in the FT’s follow-on article:
“Several months into Vladimir Putin’s
invasion of Ukraine, a veteran of Russia’s mass privatisations in the 1990s
received a call from an “old-time friend”. ‘This is privatisation 2.0!’ the friend
exclaimed enthusiastically, suggesting they join forces ‘like in the good old
times’ to get hold of factories owned by western companies that now wanted to
pull out of Russia because of Ukraine. The scramble has parallels with Russia’s
first great sell-off following the collapse of the Soviet Union, when
Kremlin-connected oligarchs snatched up prime assets at bargain prices.”
“Now, the assets on offer are all western,
and all prospective buyers need are close ties to the Russian president. ‘This
is like Venezuela,’ a senior Moscow businessman said. ‘They’re giving the best
to their cronies . . . and then everything will go to shit.”’
From the FT texts, we may conclude that Kremlin insiders
are driving the seizures of foreign corporate properties and that what
confiscations lie ahead are entirely unforeseeable.
And yet, the FT names only two major Western companies that
lost their assets in Russia by state order previous to the decrees of 16 July: Germany’s Uniper and Finland’s Fortum. In each case, it is fairly easy to see why
Russia acted as it did. The seizure of Uniper was in response to Germany’s
confiscation of Rosneft assets in their country. The seizure of Fortum assets
may be set against the Finn’s summary cancellation of their multi-billion euro
contract with Rosatom to construct a nuclear power plant in Finland. Production
of equipment for that plant and other heavy expenses had been borne by the
Russian state supplier Rosatom without any likelihood of compensation.
As regards the latest nationalizations, both of the
involved countries have given Russia ample cause to act. France has been a
major supplier of advanced war materiel to Ukraine, including most recently the
shipment of their version of the Storm Shadow long range missiles. Denmark has been the lead country in pressing
for delivery of F-16s to Ukraine, including nuclear-capable planes from their
own inventory.
And as for the future?
The talk show Sixty Minutes
recently presented a feature report on Belgium which opened with a smiling
photo of Belgian Prime Minister De Croo.
The point was that Belgium should be prepared to see nationalization of
the multi-billion euro investments of its major
corporations like Solvay in chemicals and Glaverbel in plate glass in
response to Mr De Croo’s boasting of his country’s holding the largest sum of
frozen assets of the Russian Central Bank and of his announcing plans to send
to Ukraine as humanitarian aid the tens of millions of euros that these Russian
investments are earning in interest and dividends.
*****
Now let us consider the text of the second
article in the FT reportage which also tells a very different story from
arbitrary and venal considerations driving the latest nationalizations:
“According
to one Russian oligarch, the Kremlin is using western assets to buy the loyalty
of the country’s business elite, many of whom privately chafe at the war but
have decided to stay in the country because of western sanctions. ‘People have
lost their capital outside Russia, but they are being compensated domestically.
They can make the same money they lost in the UK or wherever again,’ the
oligarch said.”
The
foregoing is set out in the midst of an article that is meant to be
anti-Putin. But these very observations
in the middle of the article can and should be read in an entirely different
manner, as setting out the logic guiding very reasonable decisions benefiting
stability in the country, punishing cruel enemies abroad and rewarding loyalists
at home. The valuation we put on the nationalizations then turns on the quality
of the new management and owners. From the FT article, one assumes they are the
same thieves and con men who became oligarchs in the Yeltsin years at the
expense of the federal government and of the broad population. But is this
justified? Let us put aside the question of who from among the Putin entourage
may become the principal shareholders. Instead let us consider who has been
named as the effective manager.
*****
And so, we ask who is Mr. Bolloev and what are his
qualifications for his new position as President of Baltika in its new status
since 16 July as a nationalized property of the Russian state.
What does the FT tell us about him?
“Taimuraz Bolloev, a
personal friend of Putin’s who has business ties to the president’s most
powerful allies, is the new head of Carlsberg’s Baltika brewery.” And further: “…Bolloev, who previously ran
Baltika in the 1990s, is reportedly close to billionaires Yuri and Mikhail
Kovalchuk.”
The Kovalchuks are identified by the FT as the likely future
owners of nationalized Baltika. But I
will not be sidelined by that issue, since they will not be running the
operation, and the presence of Bolloev at the top is the best assurance that
there can be no asset stripping or excess skimming of profits for reasons that
should be entirely clear when I explain the past of Bolloev.
Taimuraz Bolloev
is not a very Russian name, you may say. And you are right – he is an Ossetian,
from North Ossetia, the same homeland in the Caucasus as conductor Valery
Gergiev and of the same age. Both came to Petersburg as young men and made
spectacular careers in this most Russian of cities.
Let me not
mince words: Bolloev is a through and through professional in the beer brewing business. In the 1980s he worked his way up the
management hierarchy of the state brewery Stepan Razin, mastering all the production
techniques before achieving the position of Chief Brewer.
From
1991-2004 he was the Director, then General Director and finally President of
Baltika in St Petersburg. As Wikipedia
tells us, in the first 8 years of his tenure, Baltika increased its production capacity
18 times. Under Bolloev, Baltika became the largest beer producer in Russia.
In 2004,
when Carlsberg increased its control of Baltika, Bolloev left the company. Neither the FT nor Wikipedia says anything
about the terms of his departure, but as I was closely following the company
back then, I was surprised to learn that his next move was to enter the
clothing industry, where he bought out companies and emerged as a high profile
entrepreneur. It was clear to me then
that Bolloev had not been a simple hired hand at Baltika but was a substantial
share owner when he left.
Bolloev invested
heavily in the latest production equipment for his clothing factories, which
quickly moved into the sector of “special clothing” and uniforms. Ultimately his
companies became key suppliers of uniforms to the Russian army. His uniforms
are said to have marked a great improvement in the quality of soldiers’ kit.
After the
2008 Russian-Georgian war, Bolloev became the biggest outside investor in
Southern Ossetia. Let us recall that Southern Ossetia was a part of Georgia
which had declared its independence from Tbilisi more than a decade earlier and
was effectively autonomous till Georgian President Saakashvili decided to
retake the province by force in the summer of 2008.
From 2005,
Bolloev was engaged in reconstruction of several historically important
buildings in St Petersburg through his construction companies. He also was a major contributor to cultural
institutions and to the creation of monuments in Ossetia, North and South. He is on the council of the Russian
Entrepreneurs’ Association.
It would not be an exaggeration to say that Taimuraz
Bolloev is the most experienced and best prepared person in Russia today to
take charge of Baltika. Given his long commitment to Baltika, it is most
improbable that Bolloev would allow asset stripping or excessive skimming of
profits by any shareholders.
With that
point, I suggest that the nationalizations are justified and rational and
likely to serve the interests of the Russian people and state.
©Gilbert Doctorow, 2023