Kraft Heinz agrees to sell Russian baby food business

MOSCOW (Reuters) -Kraft Heinz has agreed to sell its baby food business in Russia to local drinks and snacks maker Chernogolovka, the U.S. food giant said on Friday, as domestic firms continue to capitalise on the departure of Western brands.

Chernogolovka has been one of the major beneficiaries of the corporate exodus from Russia in the past year, snapping up Kellogg Co’s local operations and eyeing a huge increase in its share of the soft drinks market as Coca-Cola and Pepsi cut ties.

According to Chernogolovka, the deal will include two factories and the “Umnitsa” and “Sami s usami” brands.

“We anticipate closing the deal in the second half of 2023 (Q3) and will continue working with Chernogolovka post-completion, to ensure a smooth integration,” a Kraft Heinz spokesperson told Reuters.

The deal has been in the works since before the conflict in Ukraine, a Kraft-Heinz spokesperson added.

“The decision to sell is a commercial decision in the best interests of our people and the local communities who rely on the local distribution of baby food products,” the Kraft-Heinz spokesperson said in an email. “This agreed sale ensures we can continue to keep vital baby food products accessible to all.”

The deal is subject to regulatory approval, Chernogolovka said.

Exiting firms are being forced to sell their Russian operations at deep discounts, with several being handed over for a nominal fee and many incurring large write-downs. Companies often insert buyback clauses that could one day see them return.

Neither Kraft Heinz nor Chernogolovka disclosed the price or mentioned any buyback clause.

Russia’s Kommersant newspaper reported on Thursday, citing sources, that Kraft Heinz estimates the deal’s value at between 2.5 and 3 billion roubles ($32.4 to $38.9 million) but the government is yet to approve the valuation.

Deals require approval from a government commission that monitors foreign investment. This week, the commission said foreign investors from “unfriendly” countries selling assets in Russia would be obliged to donate at least 10% of the sale price to the Russian budget.

($1 = 77.1000 roubles)

(Reporting by Olga Popova and Caleb Davis; Jessica DiNapoli in New York; editing by Jason Neely, Kirsten Donovan and Jonathan Oatis)