The Russian hairspray magnate snapping up western assets

For Alexei Sagal, an industrialist from the Stavropol province in southern Russia, Vladimir Putin’s full-scale invasion of Ukraine has been transformative.

The horse-breeding enthusiast has emerged as a key buyer of assets from fleeing western companies. Last week his group Arnest, which made its money as a contractor for some of the world’s largest consumer goods groups, agreed to buy Unilever’s Russian business for €520mn. It previously took over the Russian operations of Dutch brewer Heineken, US canning giant Ball Corporation and Swedish cosmetics group Oriflame.

Arnest’s income from sales doubled from Rbs7.4bn in 2021 ($77mn) to Rbs13.9bn last year, while basic profit soared about 24 times, from Rbs40.6mn to Rbs972.8mn, according to company disclosures.

Sagal’s rapid rise to prominence illustrates how the war has triggered the largest asset redistribution within the country since the USSR’s collapse, giving rise to a new generation of capitalists with ties to the state.

“Arnest was relatively unknown until such time as companies were looking to sell assets. It became a regular and successful bidder,” said one lawyer working on western exits. “The mass departure has created a new breed of entrepreneur.”

Other businessmen who have purchased western assets include Ivan Tavrin, who bought classifieds site Avito from Naspers for about $2.4bn in 2022 and German consumer goods giant Henkel’s Russian assets a year later. Last December the US sanctioned Tavrin, saying he “has become one of Russia’s biggest wartime dealmakers since the beginning of Russia’s illegal war against Ukraine”.

Finding buyers acceptable to both western regulators and the Kremlin has become ever more challenging for companies looking to exit Russia.

Multinationals have to carry out thorough due diligence on bidders and sometimes seek approval from their own watchdogs to ensure they do not breach western sanctions.

“The list of those [potential Russian buyers] who fit these criteria is constantly getting narrower,” said a person who has advised on several exit deals.

Foreign companies also need to comply with Russia’s ever stricter rules, including agreeing to steep discounts. The bigger the deal, the more likely the Kremlin and federal ministers are likely to be involved.

“Only those favoured by the authorities can get approval for these assets. Nobody gets them by chance,” said Ilya Shumanov, head of Transparency International’s Russia branch.

Exits are likely to get more costly for western companies, according to two people familiar with the plans, which are designed to keep enough western assets as leverage against confiscations of Russian assets abroad.

Measures under consideration include a rise in the mandatory discount applied to assets — from 50 per cent to 60 per cent — and an increase in taxes, from 15 per cent to 35 per cent. Putin’s approval would also be officially required for deals valued above Rbs50bn, across all sectors.

Founded in 1971 as a state chemical plant in Sagal’s hometown of Nevinnomyssk in southern Russia, Arnest has one advantage: Sagal has not been sanctioned by western powers.

The businessman is also close to Denis Manturov, Russia’s first deputy prime minister overseeing the defence sector, according to a person close to the Russian government’s subcommittee on foreign investments and three people involved in ongoing western corporate exits.

Manturov is a protégé of Sergei Chemezov, who served in the KGB alongside Putin in the 1980s and now heads state defence conglomerate Rostec, the people said. Manturov’s rising stock in the Kremlin — he was promoted in May — has made him an important figure to broker exit deals, they added. Manturov — like Chemezov — is subject to sanctions.

“The impunity doesn’t seem to have gotten to his head. He’s good at putting deals together — he’s reasonable, observes the formalities, and doesn’t demand too much for himself,” said one of the people involved in several recent exit deals.

The ministry of trade has acted “like an octopus” under Manturov, said another person who has worked on numerous exit deals. “They are redistributing the assets and structure of the economy in a very specific way, ensuring they have their own interest,” the person said, adding that this has been a boon for “medium-level sharks” like Arnest.

Formerly trade and industry minister, Manturov visited the Arnest plant in 2019.

His family have shares in an agricultural business that had ties with Sagal, according to Russian independent outlet The Bell. In December 2023, Kolos, an entity in which Sagal used to hold shares, bought half of an apple and blueberry producer co-owned by Dinastia, a company founded by Manturov’s late father. In 2020 Manturov said that Dinastia was a family business from which he received income.

Sagal was a Kolos shareholder until at least 2008, when the company stopped disclosing ownership details, according to a quarterly report on its website.

Kolos is now owned by Nina Valter, 61, who was previously a shareholder and director at various Arnest-linked companies, according to corporate filings. In July, it transferred its stake in the apple and blueberry producer to Denis Taran, a local entrepreneur.

“Sagal has never done any business with Denis Manturov’s family,” Arnest told the FT, adding that Kolos “is not connected to the assets of Alexei Sagal and Arnest in any way”.

Arnest added: “As they leave the Russian market, international companies have been selecting buyers carefully. The key to Arnest’s negotiation success lies in its long-standing partnerships with international businesses.”

It cited previous work with companies like Oriflame and Unilever and the fact that both Arnest and Sagal underwent “multiple checks by international companies and authorities”.

Sagal started working with Arnest in 1996 as a distributor and accumulated a controlling stake in the company by 2004, according to an interview with business news site RBC last year.

By then Arnest had secured its first contract with a foreign brand, making cans for German consumer goods giant Henkel’s Taft hairsprays. It now produces and packages products for the Russian market and countries such as Belarus and Kazakhstan.

Sagal also owns Russia’s Tersk Stud, one of the largest Arabian horse farms in Europe. A stallion belonging to Putin is housed there.

In a 2019 interview with Russian investment firm Veles Capital, Sagal said the stud provided valuable networking opportunities, calling it “a promising bridge between Russia and the Gulf countries”. 

Arnest has become the frontrunner to buy AB InBev’s stake in a $1.3bn Russian joint venture after authorities rejected Turkish brewer Anadolu Efes’s bid in August, according to one person with knowledge of the talks. Anadolu Efes’s application was rebuffed because of its owner’s supposed excessive support for Ukraine, the person said.

Arnest is competing with other politically connected competitors, the person cautioned, however. Last year, for instance, Sagal thought his group had secured the acquisition of Baltika, Russia’s largest brewery, from Carlsberg before eventually losing out to a longtime friend of Putin.

AB InBev declined to comment. Anadolu Efes, which said that it was “reviewing” the Russian authorities’ decision, did not respond to a request for comment.

Ball Corp, Heineken and Unilever declined to comment for this story.

The acquisition of US canmaker Ball Corp’s Russian assets for $530mn was Arnest’s first big deal since the Ukraine invasion. Russian media reported the deal was funded with a loan from VTB.

“Banks like VTB do not give multibillion loans to just anybody,” Shumanov said. VTB, the Kremlin and the government did not respond to requests for comment for this story.

Arnest then acquired Heineken’s third-largest brewer for a symbolic €1, agreeing to take on €100mn of existing debt. It will soon own about €600mn worth of assets sold by Unilever, including four factories.

“I wouldn’t say they are little guys becoming big guys,” one person who has worked on numerous exit deals said. “They are little guys still working for big guys.”

Additional reporting by Adam Samson