The Butcher is stalk­ing Europe’s board­rooms

Swe­den’s Ce­vian is stalk­ing the re­gion’s big­gest com­pa­nies “Ac­tivism has in­creased pres­sure” on Euro­pean man­agers

Bloomberg Businessweek (Asia) - - CONTENTS - Tino An­dresen −Alex Webb and The bot­tom line Stock­holm-based Ce­vian is shak­ing up Euro­pean board­rooms, fol­low­ing the script of Amer­i­cans like Carl Ic­ahn and Bill Ack­man.

“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.”

Gardell

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