Business

Western companies wrestle with “half exits” from Russia

A view shows a PepsiCo plant in Azov
FILE PHOTO: A view shows a PepsiCo company plant in Azov in the Rostov region, Russia March 9, 2022. REUTERS/Sergey Pivovarov

March 19, 2022

(This March 18 article corrects paragraph 12 to show that Bayer has no manufacturing facilities in Russia.)

By Richa Naidu and Jessica DiNapoli

(Reuters) – Western companies, which have a presence in Russia to provide essential supplies such as food and medicine, are trying to strike a balance between President Vladimir Putin’s government and pro-Ukraine proponents, who are pulling them in opposite directions.

More than 400 companies have withdrawn from Russia since the February 24 attack on Ukraine began, according to a list compiled by Yale School of Management professor Jeffrey Sonnenfeld. They left behind assets totaling hundreds of billions of dollars before the invasion, which Russia calls a “special military operation.”

However, about 80 companies have remained present even as they have suspended new investments and business ventures. Many are consumer and pharmaceutical companies arguing that an exit would cause significant harm to the Russian people. Some also fear legal repercussions for their employees in the country should the Russian government take retaliatory action.

“Companies believe they can’t just abandon small Russian businesses and consumers who rely on them,” Bruce Haynes, global co-chair of crisis communications at PR firm SVC+FGH, told the companies when they pulled out advises from Russia.

Consumer goods giants such as PepsiCo Inc, Procter & Gamble Co and Nestle SA have announced they will remain present in Russia to offer staples and hygiene items such as milk and diapers.

With the number of casualties and refugees from the conflict in Ukraine mounting, pressure is mounting to withdraw completely from Russia.

“Barring a trend reversal, which we don’t currently see, the pressure (to exit) will increase,” said BSR Managing Director Aron Cramer, who advises companies on environmental, social and corporate governance (ESG) issues.

Katie Denis, communications and research director at the Consumer Brands Association, a retail group that counts Pepsico, Coca-Cola and P&G among its members, said its members, by and large, do not support Russia’s actions in Ukraine, but rather the uninvolved Russian people should not suffer from this.

Pharmaceutical companies including Pfizer Inc, Germany’s Bayer AG and Eli Lilly have said they are ceasing non-essential operations in Russia but plan to continue supplying drugs for diseases like diabetes and cancer. They have found that prescription drugs have been exempted from international sanctions because they serve an essential humanitarian need. In the last few days, however, these goods have also been scrutinized.

Ukrainian President Volodymyr Zelenskyy this week called on drug companies to join the big pullouts from Russia. Sonnenfeld, whose list was confiscated by human rights activists to pressure global companies to leave Russia, has also called for such a move.

Some pharmaceutical companies are backed by their shareholders. For example, Josh Brockwell, an executive at investment firm Azzad Asset Management, said he supports Pfizer’s decision to continue supplying Russia. “I don’t think people should suffer for the actions of the (Russian) government,” he said.

Many US-based pharmaceutical companies say they do not manufacture drugs in Russia, but some European competitors, including Switzerland’s Novartis SA, have manufacturing facilities in the country.

CUTTING OUT RUSSIA PROFITS

Putin said last week Russia could seize assets from companies that cease operations in the country. Russian prosecutors have also warned some Western companies that their employees could face arrest if they halt production of essential goods, a person familiar with the matter said.

Kingsley Wheaton, British American Tobacco’s chief marketing officer, told Reuters last week that going out of business or ceasing to sell or manufacture its products would be viewed by Russia as criminal bankruptcy, which could prosecute its employees in the country.

Settling transactions under bank sanctions and securing commodities are other challenges for consumer companies still operating in Russia, said Jack Martin, fund manager at Oberon Investments, which owns Unilever, Diageo, Burberry, GSK, Eli Lilly and Nike is.

“The risk premium for investing in companies doing business in Russia has increased,” Martin said.

Companies are trying to find ways to appease all sides. Pfizer and Eli Lilly, for example, said they would set aside all profits from sales in Russia for humanitarian aid. Novartis and Bayer have each pledged millions of dollars to help Ukraine.

Some companies remain in Russia while looking for parties to buy or take over their local operations. British America Tobacco’s Wheaton said his company is trying to do this “quickly”. Interested parties may also include its 30-year-old Russian distributor, Wheaton said.

Many companies also worry about what would happen to their facilities in their absence. For example, an abandoned food factory could be repurposed by Russia to supply troops fighting in Ukraine.

Some investors want companies to consider how they could fund the war indirectly by paying taxes. Hannah Shoesmith, director of engagement at asset manager Federated Hermes, told Reuters last week that companies should “carefully consider” what taxes they pay to the Russian government and whether the products and services they offer are worth the risk.

Companies that have left Russia may face difficulties in reclaiming their property and assets once expropriated. Tiffany Compres, a partner at law firm FisherBroyles, said companies can sue Russia in international venues like the International Center for Settlement of Investment Disputes, but such cases can drag on for years and Russia cannot be forced to pay.

“Even if the company wins the lawsuit, Russia has a reputation for not paying,” Compres said.

(Reporting by Richa Naidu in London and Jessica DiNapoli in New York; Additional reporting by Ross Kerber and Caroline Humer in New York and Uday Sampath Kumar in Bangalore; Editing by Greg Roumeliotis and Richard Chang)

https://www.oann.com/analysis-western-companies-wrestle-with-russia-half-exits/?utm_source=rss&utm_medium=rss&utm_campaign=analysis-western-companies-wrestle-with-russia-half-exits Western companies wrestle with “half exits” from Russia

DUSTIN JONES

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