Foreign Firms’ Russian Assets Are Lousy Deals for Locals

The full or partial curtailing of more than 1,000 foreign companies’ operations in Russia since Vladimir Putin ordered an invasion of Ukraine on Feb. 22 has provided perhaps the most spectacular evidence of the damage the imperialist adventure has inflicted on Russia. There is, however, another side to it: It’s a potential bonanza for Russians willing to take over the assets orphaned by the Western stampede for the exits.

“Potential” is the key word here.

At the start of this year, Russia had $521 billion of accumulated direct foreign investment, according to the Russian Central Bank. Much of it was into import-supporting networks such as store chains selling foreign brands, but a lot of the money also had gone into industrial and agricultural assets that are less dependent on branding. Once Putin attacked, however, many foreign companies dumped their Russian operations because retaining them could have resulted in heavier penalties from financial markets. Last month, Jeffrey Sonnenfeld of the Yale School of Management and his colleagues published a paper showing that stock market returns in late February through mid-April were, on average, positive for firms that left Russia or scaled back their presence there and negative for those that dug in or even tried to buy time.

To give an example of the trade-off involved, McDonald’s Corp. had 847 restaurants in Russia at the start of the year, out of 10,785 in “operated markets” — that is, those where the corporation has a presence — outside the US. Assuming their average sales were comparable with other restaurants in these markets, their loss would mean a revenue hit of about $950 million a year, based on 2021 data. But that would be just 4% of adjusted sales; based on Sonnenfeld’s calculations, staying in Russia would have meant an average 6.8% hit to a company’s market capitalization from Feb. 23 through April 19 — in McDonalds’ case, an $11.8 billion shareholder value loss based on its Feb. 23 market cap.