March 21, 2022: -Burger King is moving to divest its 15% stake in its Russian business, but the burger chain said it couldn’t legally suspend operations in the market right away.
The Restaurant Brands International chain announced it was suspending all corporate support for its 800-plus franchised locations in Russia in response to the Kremlin’s ongoing attacks on Ukraine. The suspension is including refusing approvals for more investment or expansion and pausing operations, marketing, and its supply chain.
But the company’s International President David Shear laid out in an open letter to employees that the structure of the company’s Russian business hampers its ability to shutter restaurants in the market, such as some of its competitors.
“Would we like to suspend all Burger King operations immediately in Russia? Yes. Are we able to enforce a suspension of operations today? No,” Shear said.
Burger King entered Russia through a joint venture with businessperson Alexander Kolobov, Investment Capital Ukraine, and VTB Capital, which U.S. sanctions have hit as an affiliate of a Russian central bank.
Shear said the burger chain contacted Kolobov, responsible for the day-to-day operations and oversight of the Russian locations, and “demanded the suspension of Burger King restaurant operations in Russia.” Kolobov refused, according to Shear.
Burger King owns a 15% stake in the joint venture, and none of the partners has a majority stake. According to Shear, Burger King can’t shut down the business on its own.
“There are no legal clauses that are allowing to unilaterally change the contract or allow any partners to walk away or overturn the entire agreement simply,” he wrote. “No serious investor in any industry would agree to a long-term business relationship with flimsy termination clauses.”
Shear said the company had started divesting its stake in the joint venture, but it will take some time to unwind based on the terms of the agreement. He said that Burger King fully complies with all applicable sanctions.
Enforcing Burger King’s contract would require the support of Russian authorities, which is likely to happen anytime soon because of the ongoing conflict and tensions with the West.
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