The Butcher is stalking Europe’s boardrooms
Sweden’s Cevian is stalking the region’s biggest companies “Activism has increased pressure” on European managers
“The times when investors only show up at shareholder meetings for the buffet are over.” —— Attorney Harald Selzner
When Cevian Capital buys a stake in your company, you have a choice: Join the hunters or become the prey. It’s a decision the leaders of German industrial conglomerate Thyssenkrupp and Swiss engineering giant ABB may soon face. Cevian has built the secondbiggest stake in both companies, and if executives fail to act on its demands, the firm will likely start a phase insiders call “the Hunt”: seeking to turn investors against management to achieve its goals, which often entail shedding business units. “They try to increase pressure by announcing what they want publicly,” says Mikael Wickelgren, a researcher at the University of Gothenburg in Sweden. The press is “a good megaphone for what they think.”
In the 14 years since management consultant Christer Gardell and investment banker Lars Forberg founded Cevian, the Stockholm-based fund has taken a page from American activists such as Bill Ackman, David Einhorn, and Carl Icahn, an early backer of Cevian and Gardell’s occasional tennis partner. Although Gardell and other European activists typically eschew the public proxy fights used by their U.S. peers, they follow a similar script in building a stake large enough to ensure that management is obliged to listen to them. “An uptick in homegrown activism has increased pressure” on European managers, says Husein Bektic, an analyst at researcher Activist Insight in London.
At ABB, Cevian has pushed for asset sales and even floated the idea of splitting the group into three companies, according to people familiar with the discussions. ABB says it’s “reviewing all options” for its businesses. Cevian says it benchmarks its investments against similar companies and helps management bring performance in line with competitors. “This requires intensive, fact-based work and literally years of effort, but it is worthwhile,” says a representative of the firm. When it speaks to the press, Cevian says, it’s simply “to explain who we are and what we do.”
Cevian’s investment in Volvo illustrates the Hunt. After buying into the truckmaker in 2006, Gardell ratcheted up the pressure, demanding improved profitability in interviews with Sweden’s Dagens Industri and other local media. Volvo (which sold the automaker of the same name in 1999) raised profit targets and announced special dividends. In 2013, Gardell— who’s been dubbed “the Butcher” by the Swedish press—told Dagens Industri he would “hold the board responsible” for delivering savings from a cost-cutting program. Volvo Chief
Executive Officer Olof Persson soon increased the number of planned job cuts to 4,400. Cevian still wasn’t satisfied. By last February the firm had become Volvo’s biggest shareholder. Cevian partner Eckhard Cordes soon joined the board, and Persson was out as CEO. In October, a technology business—which Cevian had wanted Volvo to shed for years—was put up for sale.
Gardell has applied similar pressure on companies in Finland and Britain, and on others in Sweden as well. An early investment was phone company TeliaSonera, where Cevian persuaded shareholders to oust half of the eight-member board. At Finnish mining-equipment maker Metso, Cevian advocated divesting its paper, pulp, and energy unit. After Metso spun off the business two years ago, shareholders got stock in a new company and saw the value of their investment jump by more than 25 percent. Cevian has reported stakes in about a dozen companies and manages €14 billion ($15.3 billion) of assets in its two funds, roughly quadruple what it had in 2008. The larger fund returned an average of 13 percent in the three years through March 2015, according to the New York State and Local Retirement System, an investor.
The firm invariably starts with an amicable approach to its targets, sometimes inviting executives on actual hunting expeditions through the forests of northern Sweden. Cevian seeks seats on committees responsible for setting strategy and appointing managers, then grills executives about operations. When its analysts spot inefficiencies or opportunities to profit from a spinoff, they’re quick to recommend selling units, one person says.
Thyssenkrupp is resisting Cevian’s pressure. The fund announced it had accumulated a 5.2 percent stake in 2013, which it’s since increased to 15 percent. Thyssenkrupp CEO Heinrich Hiesinger outflanked Gardell by securing the supervisory board’s unanimous approval for a reorganization plan in November 2014, two months before a Cevian partner became a director. To limit Cevian’s insight into Thyssenkrupp, Chairman Ulrich Lehner has barred the fund’s partners from speaking with anyone other than him and Hiesinger, according to a person familiar with the company. (Thyssenkrupp declined to comment.) Those moves have spurred Gardell to start preparing the Hunt at Thyssenkrupp, according to two people who regularly deal with Cevian. “The times when investors only show up at shareholder meetings for the buffet are over,” says Harald Selzner, a lawyer at Latham & Watkins in Düsseldorf who advises companies coping with activists. “Activism is changing how boards in Europe run their business and interact with shareholders.”