Insight: Sweden's "Warren Buffett" eyes bigger investment crown

L E Lundbergforetagen AB (publ)

18/03/2016 08:56

* Industrivarden has long way to go to catch up with rivals 
    * Several holdings have new management since Lundberg took 
over 
    * Banking sources see asset sales, deleveraging 
 
    By Mia Shanley 
    STOCKHOLM, March 18 (Reuters) - In a country where 
family-run business spheres dominate the landscape, Fredrik 
Lundberg, often referred to as Sweden's Warren Buffett, is 
tackling bigger rivals on several fronts. 
    A new centre dedicated to Sweden's Nobel Prize is planned 
near his company's headquarters on one of Stockholm's Baltic 
promenades, with funding from the Wallenberg investment empire 
and the Perssons who created retail giant Hennes & Mauritz. 
    Lundberg's own firm and its real estate company, whose 
deputy CEO is his daughter, have objected to the scale of the 
proposed metal and glass building, citing concerns about their 
sea view and the value of their century-old properties. The 
Nobel Centre says its architects have cut it back by 20 percent. 
    The hitherto Sweden-focused Lundberg began competing 
directly with the Wallenbergs and others last year when he 
became chairman of Industrivarden  INDUa.ST , which backs firms 
that employ almost half a million people around the world in 
everything from telecommunications to banking. 
    He saw the opportunity to turn it around after a corporate 
spending scandal and a decade of dismal returns; bankers say 
there may be asset sales at the likes of steel manufacturer SSAB 
 SSABa.ST  and truckmaker Volvo  VOLVb.ST  as he brings down 
debt.  ID:nL8N15K2OX  
    The 64-year-old magnate, who inherited his construction and 
property holding Lundbergforetagen  LUNDb.ST  from his father in 
the 1980s, earned the Buffett moniker with steadily rising 
returns: they totalled 160 percent over the past 10 years, well 
above Sweden's index. http://reut.rs/22g8HFA 
    Analysts say his track record bodes well for Industrivarden 
whose return over 10 years only matched Stockholm's blue-chip 
index  .OMXS30 , but his rivals are formidable. 
    Other investment companies such as Wallenberg-backed 
Investor Group  INVEb.ST  and Kinnevik  KINVb.ST , backed by the 
Stenbeck family, have returned about 180 percent to shareholders 
over 10 years, albeit more unevenly, as they tested unchartered 
areas like e-commerce and put more money into private equity. 
     
    UNCLE FREDRIK 
    "The Wallenbergs have built over 150 years a contact network 
across the whole world which they have grown and constantly 
invested in," said Ronald Fagerfjall, an author who has penned 
several books on Swedish business and the Wallenbergs. 
    "Lundberg is standing at the start of that journey, if it is 
one he wants to take." 
    One of Sweden's richest men, Lundberg moved his family to 
Switzerland in 1985 for almost a decade to escape high taxes but 
is now firmly based at home, where his conservative reputation 
has given him the nickname "Farbror Fredrik", Swedish for "Uncle 
Fredrik". 
    Industrivarden has eight portfolio companies and major 
stakes in telecommunications giant Ericsson  ERICb.ST , Volvo 
and lender Handelsbanken  SHBa.ST . Together with Investor Group 
it is involved in more than half of the market capitalisation of 
Stockholm's main index. 
    Lundberg stepped in as chairman in May after building up a 
total 22.1 percent voting share since 2002, stirring speculation 
in Swedish media he wants to merge the company with his own, an 
investment firm with far less debt and less cyclical holdings. 
    "No, it is not happening at all," he told Reuters after 
Lundbergforetagen reported earnings last month, saying analysts 
who saw synergies between the two companies were wrong. 
    "The different portfolio companies have their respective 
agendas and don't have anything to do with one another," 
Lundberg said. "What we are doing is capital management." 
     
    CONTROL 
    His company is 40 percent invested in real estate and has 
exposure to engineering group Sandvik, outdoor equipment maker 
Husqvarna and Industrivarden, while the bigger investment group 
has a complicated series of crossholdings known as "the System". 
    "We get from Lundbergforetagen's perspective a 
diversification of our assets in big companies which we wouldn't 
have been able to do on our own directly," he said. "One can say 
that Lundbergs and Industrivarden complement each other." 
    He has cleared out the old guard from Industrivarden and 
recruited 45-year-old private equity executive Helena 
Stjernholm, who is known for being sharp and personable, as CEO 
in August.  ID:nL5N10O1P9  
    "We are more specific and more concrete. And yes, more of an 
activist," Stjernholm told Reuters, saying the group would stay 
in listed companies with a weight towards engineering and plans 
to enter smaller companies. 
    "You have to be very clear about what you want to achieve." 
    Investors want activism after reports of corporate excess 
last year at hygiene products maker SCA  SCAb.ST , in which 
Industrivarden holds a 10 percent stake, the largest. 
    Newspapers said SCA flew in chefs and hunting dogs for an 
executive function in northern Sweden and the corporate jet 
returned empty to Stockholm to pick up a forgotten wallet, 
leading to the ousting of Industrivarden executives. 
    With Lundberg, the main perceived danger is micromanagement. 
Asked about this, Roger Ekstrom, Lundbergforetagen's press 
chief, said: "He wants to have control - macro to micro. This is 
not management by fear." 
    One senior former employee said he had not found it a 
problem. "I quickly realised the way to handle it was to keep 
him well informed," said the source. 
    Lundberg was not overly concerned by quarterly reporting or 
short term share moves, he said. "His leadership style is about 
being informed but not necessarily taking over...He doesn't like 
surprises." 
    To minimise surprises, Industrivarden recently set a target 
to bring gearing down to 0 to 10 percent from 15 percent. 
    Standard & Poor's upgraded Industrivarden last month due to 
a perceived lower risk profile and M&A bankers are lining up 
pitches, saying SSAB  SSABa.ST  could do a rights issue or 
dispose of its construction business to improve its finances. 
    Swedish business daily Dagens Industri speculated this month 
Industrivarden could sell its share in Ericsson, one of its 
original holdings, or trim its share of Handelsbanken. 
    Mining equipment maker Sandvik  SAND.ST  and Volvo have 
struggled but now have new CEOs - two recruits from within the 
Wallenberg sphere who are driving change. SCA could spin off its 
forestry assets and Volvo could sell its construction business, 
banking sources say. 
    "I think we will also look into divestments if the 
opportunity looks right," Stjernholm said. She declined to offer 
details but said that while the company has the luxury of an 
"evergreen timetable" it will not hold companies "forever". 
    It has already told Ericsson, whose largest shareholder is 
Investor, to improve profitability in several of its businesses. 
    This week, Nordea analyst Elias Porse raised the bank's 
recommendation on Industrivarden, what it called a "once-sleepy 
investment company", to a buy from hold in a note to investors 
entitled "A new S(tj)eriff in town". 
 
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GRAPHIC-Total return vs peers    http://reut.rs/22g8HFA 
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 (Additional reporting by Sven Nordenstam; editing by Alistair 
Scrutton and Philippa Fletcher) 
 ((mia.shanley@thomsonreuters.com; +4687001004; Reuters 
Messaging: mia.shanley.thomsonreuters.com@reuters.net)) 
 
Keywords: SWEDEN INDUSTRY/LUNDBERG