Wallenbergs change direction

It is not difficult to annoy Jacob Wallenberg.

Simply insinuate that Investor, the family holding company he chairs, is more interested in maintaining its own power than generating returns for its shareholders and the full force of five generations of Wallenberg heritage expresses itself in an unblinking and penetrating blue-eyed stare.

“Some say that Investor is a way for the Wallenberg family to collect companies,” he says icily. “That is not the case.”

But like it or not, the question of returns goes to the core of a growing debate about changes to the investment strategy of Sweden’s most powerful industrial dynasty, whose interests include stakes in the country’s biggest and most internationalised blue chips.

This discussion has been fuelled by an active 12 months during which Investor either sold, delisted, restructured or re-capitalised some of its holdings and fought off a hostile bid by MAN, the German truck maker, for Swedish rival Scania.

The impression created by this intense activity is that Investor is moving away from being a passive holding company of Swedish blue chips and becoming more actively engaged in managing its portfolio.

This impression has been enhanced with the arrival at the end of 2005 of Börje Ekholm as its chief executive, armed with a track record of running private equity investments and venture capital for Investor in New York.

It is not something Mr Ekholm disavows. “We are increasing our activity level by making sure each company has a clear value creation plan in place,” he says.

Mr Wallenberg insists these changes are not new but started in 1994 with the creation of EQT, Investor’s private equity arm, and that last year’s activity forms part of a longer-term plan.

But the fact remains that Investor is midway through a fundamental shift in the structure of its investment portfolio, primarily through an increase in its private equity and venture capital investments in mainly unlisted companies. Mr Ekholm says he is aiming for these investments to double to up to 25 per cent of Investor’s total assets within three to five years, up from just 4 per cent in 1999 and about 13 per cent now.

The combination of an active 12 months, Mr Ekholm’s hands-on style and the proposed increase in its exposure to higher-risk, better-performing investments, has triggered a shift in investors’ attitude towards Investor.

The number of foreign investors on its shareholder register, for example, has increased from 20 per cent to 27 per cent last year.

Furthermore, the Investor “discount” – the degree to which Investor’s market value trades at a discount to the combined market value of its holdings – is narrowing. It fell to less than 20 per cent at the end of last year, having peaked at 40 per cent in 2002.

In the past, institutional investors were wary of Investor because it held minority stakes in its blue-chip companies but controlled a much bigger share of the voting rights through special shares. It was feared the Wallenberg family could use its voting shares to protect its own interests.

However, its growing use of private equity and venture capital investments has now created what Mr Wallenberg calls a stronger reason to buy Investor shares. He says Investor has also narrowed the gap between its share of the capital and its share of the votes in most of its core holdings.

With this shift in its investment strategy under way, Mr Ekholm admits the company is actively looking for new investments and that these are likely to be in unlisted companies.

Investor is more actively managing its core investments and will, over the next five years, more than double its exposure to better performing investments.

Armed with this strategy, Mr Wallenberg offers a pugnacious defence against the company’s critics. “If you like it, there it is. If you don’t, you have plenty of other alternatives,” he says.

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