Months later than planned, beer brewer Heineken is still leaving Russia. The producer announced in March last year that it wanted to withdraw from the country after the Russian army had invaded Ukraine shortly before. Although Heineken had a buyer for the Russian division since this spring, the formal transfer was still delayed due to “all kinds of bureaucratic steps” from the local authorities.
At the presentation of the half-year figures at the end of July, CEO Dolf van den Brink expressed his frustration about the elusive approval process. According to him, the sale of Heineken Russia was “our number one, two and three priority”. It was also a guess for the parent company itself whether Russia would approve the sale. “We would like nothing more than for it to be done tomorrow,” said Van den Brink at the time.
In the weeks that followed, progress was still made in the transfer. It was not completed until this Thursday afternoon, Heineken announced, when a representative of the brewer signed the sales agreement at a notary in Moscow. Heineken emphasizes that nothing was gained from the transaction: the seven Heineken breweries in Russia were sold for a symbolic euro.
Now that the sale has been completed, Heineken can also reveal who will continue the Russian business unit. The buyer is Arnest Group, a local maker of packaging products from Nevinnomyssk, not far from the Georgian border. Arnest claims to be the largest manufacturer of aerosols, for example air freshener, deodorant or hair spray, in the former Soviet region. The group has 2,000 employees and converted about 340 million euros in turnover in 2020.
Danger of nationalization
Although spray cans at first glance have little to do with beer, there is some logic behind the sale. A year ago, Arnest already took over the Russian factories of the American Ball Corporation, the world’s largest maker of cans for beer and soft drinks. After the transaction with Heineken, the company will also have the resources to fill the packaging itself.
It seems that the production of beer has interested Arnest for some time. For example, the company was the main candidate to take over the Russian breweries of the Danish Carlsberg, wrote business newspaper Financial Times this summer. It did not come to that: in July, the maker of Baltika, the most drunk beer brand in Russia, was surprised when the Russian authorities intervened in the middle of the sales process and placed the factories under state control. The same happened to the French dairy giant Danone.
From that moment on, the fear of a sudden nationalization also grew at Heineken. For that reason, the company has so far refused to comment on its attempts to divest the Russian activities: any detail could damage the sales process or affect the approval by the Russian authorities, Van den Brink said last month. That danger is now over.
According to the CEO, the outside world often presented a departure from Russia as too simple. But even Heineken, which was preparing for a tough process, was ultimately “still too optimistic”, with its initial target date of the end of 2022. “People say: just hand in the key and go. But that is impossible.”
Crucial to the Dutch brewer’s departure from Russia was that the 1,800 local employees, some of whom have worked for the company for twenty years, would have work and be safe. Heineken feared that if it just went away, the Russian division would collapse and local employees would then be prosecuted for destroying a company.
The condition for the sale was that a new owner would provide job guarantees. Arnest has now promised that the employees of the seven factories taken over will be assured of work for at least the next three years. This allows Heineken to “depart from Russia in a responsible manner”, says Van den Brink in an explanation on Friday.
Continue brands
Part of the agreements is that the buyer can still carry a few Heineken brands during those three years, although it will no longer receive marketing support or other help from the Dutch brewer. They are Gösser, Edelweiss and Krusovice. According to the company, this commitment was necessary because otherwise the continued existence of the Russian division would still be at stake.
Sales of the Heineken brand itself had already ceased last year and the production and sale of other brands, such as Amstel, will be phased out in the coming months. Heineken, in turn, waives any revenue it would normally receive from the use of trademark rights. According to Heineken, the sale agreement does not include an option to buy back the breweries once business sentiment in Russia improves.
The divestment of the Russian activities will result in a one-off loss of 300 million euros for Heineken. The brewer has already incorporated two thirds of that depreciation into the results in recent quarters. In addition, there is still an “historic corporate debt” of about 100 million euros: losses at the Russian division that have been supplemented by the parent company over the last ten years. Arnest has promised to pay it back in installments.