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. Last Updated: 07/27/2016

Wallenberg Empire Revamping




STOCKHOLM, Sweden -- Since the mid-19th century, Swedish industry has been synonymous with the Wallenberg family. The dynasty's interests reach everywhere, from heavy trucks and mobile phones at home to construction sites in Asia and boardrooms in the United States. As one measure of the Wallenbergs' power in Sweden, their holding company, Investor AB, controls companies that account for an estimated 40 percent of shares traded on the Stockholm stock exchange.


But like Sweden itself, the Wallenberg business empire is under siege these days by the forces of the global economy.


"We were suddenly subject to all the competitive powers in the world," said Jacob Wallenberg, 43, the chairman of Investor's SEB Bank, who, along with his cousin Marcus Wallenberg, also 43, represents the family's newest generation of top managers.


In an unyielding global economy of free-flowing money, international megamergers and an intense focus on "core competencies" and shareholder value, the Wallenberg family conglomerate, with its disparate and far-flung interests, has been looking increasingly like an anachronism.


"Investor's traditional strategy - as a long-term dominant and active owner across a range of sectors based on a slowly changing or unchanging portfolio - is untenable," wrote Sweden's leading weekly business magazine, Affarsvarlden.


But the Wallenbergs hardly are sitting idle while the economic ground shifts under their feet. Rather, they are restructuring key parts of their empire, particularly in forestry and pharmaceuticals, to make it more international, all in an effort to improve returns. In a change from tradition, the family business is being run by a nonfamily member, Percy Barnevik.


Barnevik, who made a name for himself with the success of the 1987 Swedish-Swiss merger that created ABB Asea Brown Boveri, seemed perfect for the job of running Investor. Indeed, ABB, the engineering behemoth based in Zurich, Switzerland, was acclaimed as one of the world's first truly borderless companies.


In his short period at the helm of Investor, Barnevik has instilled tighter corporate governance in clubby Sweden and loosened the Wallenbergs' grip on Swedish industry.


For years, the Wallenbergs had solidified their power at many Swedish companies not so much by acquiring majority equity stakes but by creating special voting rights for themselves that, in some cases, were as much as 1,000 times their actual holdings.


"More and more players in the capital market would say that peculiar capital structures make for peculiar decisions," Jacob Wallenberg said in an interview in Stockholm.


At some companies, Investor reduced its voting-power advantage to tenfold, a more defensible level that nonetheless left the Wallenbergs in effective control even with a minority interest. The balance between stock and voting rights is a tricky one. Without the voting power to dominate management teams, the holding company finds its ability to run the companies in its portfolio greatly diminished. Investor's low equity stakes mean, though, that the company does not necessarily benefit as much from successful investments.


Meantime, with dizzying speed over the past two years, Investor has made deals in forestry, pharmaceuticals and aerospace that produced waves far beyond Sweden.


In December, Zeneca Group PLC of Britain announced a $34.6 billion deal to acquire Investor's Astra AB to create a pharmaceutical powerhouse. Investor's Saab Aircraft sold a 35 percent stake to British Aerospace PLC for $454 million, and Stora AB, Investor's forest products group, announced a $6.9 billion merger with Finnish rival Enso Oy.


Those deals were intended to give the company a competitive edge in increasingly global businesses. Investor insiders say the wave of restructuring is far from over. At the same time, Investor's ramparts no longer seem as immune to assault as they once did.


In January, Volvo AB - which is not a Wallenberg company but is run by a former Wallenberg manager, Leif Johansson - bought a 12.85 percent chunk of stock in Scania AB, the Wallenberg-controlled truck company. Such a challenge to the Wallenbergs, once unthinkable, could only have been undertaken with the help of key institutional investors.


But the once improbable has become commonplace all across the corporate landscape as the barriers that once kept Swedish businesses in Swedish hands crumble. For most of the century, entrepreneurs have ventured out from Stockholm in search of profitable opportunities to enhance their sheltered home base.


Now, things have changed. Sweden's per capita income has plummeted to world No. 17 from No. 3 and Swedish companies are leaving.


Ericsson, the Swedish mobile-phone maker that is under severe competitive pressure from Nokia of Finland, is joining the exodus. A big element of the Investor portfolio, Ericsson will move its European headquarters and corporate finance department to London in August.


In the past, the very breadth of Investor's holdings underpinned the Wallenbergs' dominance in Swedish business. But as it confronts pressure for restructuring, its stake in the companies in its stable, and thus its control of them, stands to be reduced.


The erosion of the Wallenberg empire has led to speculation that other Investor interests - including parts of its original 19th-century base, SEB Bank - may be on the block. "It is increasingly difficult to play the part of an active owner once control of commercial enterprises is diluted," Dahlback, Investor's outgoing chief executive, was quoted as saying by Affarsvarlden earlier this year. "And if we cannot perform as active owners, we would prefer to get out."


"It's not just a numbers game," Barnevik, the company chairman, said. "It's a game of confidence from the institutions that you are a good owner whether you own X percent or 2 times X percent. It's a question of how well you do the job."