PMI Struggles to Sell its Russian Business

Philip Morris International’s attempts to sell its Russian business have stalled due to the challenge of leaving the country on favorable terms, according to an article in the Financial Times.

Discussions with at least three “serious” potential buyers have gone nowhere in part because of the strict government requirements, according to PMI CEO Jacek Olczak.

Kremlin rules make it difficult for companies to exit Russia without taking a huge financial hit. Among other provisions, the government reserves the right to dictate the valuation of foreign companies’ Russian assets as well as the new owners’ dividend and access to cash flow.

Olczak told the Financial Times he had a duty to shareholders to recover value, adding he would “rather keep” the business in Russia than sell on stringent Kremlin terms. While the asking price was not disclosed, PMI has $2.5 billion worth of assets in the country, according to company filings.

Many western companies vowed to exit Russia immediately after last year’s invasion of Ukraine, but less than 9 percent of EU and G7 groups in the country had left by the end of December, according to research by the International Institute for Management Development.

Russia has historically been a huge market for the tobacco industry because of high smoking rates and consumer willingness to switch to vapes and heated-tobacco products. Together with Ukraine, it accounted for 8 percent of PMI’s $31.7 billion revenues last year.

Imperial Brands sold its Russian operations to a local partner soon after the invasion, taking a $463 million hit to annual profits.

Japan Tobacco does not plan to leave and BAT has struggled to get a sale over the line, although it said this month it was in “advanced talks.”