March 23, 2014 / 2:57 PM / 5 years ago

With Nordic clean-up done, Cevian prepares new broom for Germany

STOCKHOLM (Reuters) - Such is the weight of Christer Gardell’s voice in Europe that Volvo’s share price jumped 4 percent one day in January when a Swedish business daily ran a front-page story on the activist investor calling on the truckmaker to “start delivering”.

Co-founder of Cevian Capital, Christer Gardell, poses in Stockholm in this December 20, 2007 file photo. REUTERS/Henrik Montgomery/TT News Agency

Gardell, once called a capitalist “butcher” by Swedish media, has emerged more than a decade after co-founding Cevian Capital - now a $12 billion activist fund - as Europe’s biggest activist investor and one of its most influential.

Having established increasing influence in the Nordics - Cevian said this week it had nearly doubled its stake in Volvo over a six-month period - he is now trying to strengthen its presence in Germany.

Gardell’s knack for spotting value in struggling companies and his ability to implement strategic change - whether by management shake-up or asset sales - has helped him chalk up many successes in the Nordics.

Its second fund, which launched in 2006, has returned around 180 percent since inception, beating the MSCI Europe Index, which has returned 36 percent in the same period. Figures from research firm Evestment show Cevian is among the 15 largest hedge funds in Europe and 30 largest in the world.

Cevian invests in stable industries and overlooked companies that it can repair and sell at a premium - preferably double within three to five years. It keeps a portfolio of 12 core holdings, including big European blue-chips such as Volvo, British security firm G4S and German conglomerate ThyssenKrupp.

“We like companies which have strong market positions and solid cash flow,” Gardell told Reuters in an interview in his Stockholm headquarters, surrounded by tennis memorabilia - one of his greatest passions.

“Many of those are industrial companies in old-fashioned industries, and they are from this perspective still very low-priced.”

“We don’t buy shares in Nokia, Apple and Twitter, or mining companies which are driven by raw material prices,” he said.

Gardell’s strong ties with U.S. activist investor Carl Icahn, who has featured in media for nagging Apple for buybacks and eBay for a PayPal spin-off, have added to Cevian’s prestige on the other side of the Atlantic. The two met in New York in 1998 and have remained close friends since.

Icahn invested in Cevian’s first fund in 2003 and remains an investor today.

“He likes this region and finds that corporate governance is better structured in the Nordics than in the U.S.,” Gardell said.

Today, three out of four of Cevian’s investors are in the United States.

The 53-year-old co-founded Cevian in 2002 with Lars Förberg, who is based in Zurich, but Gardell is its public face.

“He is the business community’s George Clooney. He has the looks, and is world class with the media. The media has used him, and he’s used the media,” said Claes Ekstrom, a partner at Swedish private equity firm Altor, who has known Gardell for 30 years after they started their careers together at McKinsey & Company in Stockholm.


With the most obvious Nordic restructuring cases already completed, from retail to mining equipment, Gardell watchers believe Cevian is reaching for similar success in Germany.

German-speaking Europe, Britain and the Nordics are the three areas in which the fund is considering investment opportunities, probably in that order, Gardell says.

Forberg says half the Cevian team speaks German and it is probably the market where the firm spends most of its time.

This month, Cevian announced it had built up a 15 percent stake in ThyssenKrupp, which has been trying to shift its focus to higher-margin products and services. It also has a near 20 percent stake in German construction firm Bilfinger.

Some say Gardell may face a tougher battle for influence in Germany, where corporate governance is not as investor friendly.

Boards of directors at Nordic companies are chosen by a nomination committee made up of usually the largest two or three shareholders. In Germany, like many other parts of the world, they are chosen by the boards themselves.

Cevian, which sits on about half of the boards of the companies it owns, has used the Nordic system to its advantage, taking seats on nomination committees and gaining quick strategic influence. The Nordic system also makes it relatively easy for Cevian to switch out underperforming board members.

Supervisory boards in Germany tend to be more detached from the business, with management doing most of the steering, meaning influence is not as direct as in Sweden.

Förberg said there was no problem gaining board positions in Germany as Cevian is seen as a key shareholder. It had a board position in crane group Dmag Cranes and has one in Bilfinger.

“There were no complications, no issues, just a natural expectation that we would join the boards, and we did,” he told Reuters.

Cevian says it is a strong believer in the strength of the Swedish model - the nomination committee approach in particular - and is lobbying for change in both Germany and Britain.

But it may take time. It does not yet have a seat on Thyssen’s board, though it has expressed its interest in one.

“Germany is made up of tightly knit networks,” said Gunnar Hesse, a professional board expert based in Sweden. “Consensus is a major Swedish thing. Owners in Germany are more arrogant, and if they are the major shareholder, they tend to ignore the other shareholders.”

It won’t be the first time Gardell has been kept out of the financial elite’s inner circle.

When he started investing, the Stockholm scene was dominated by a handful of wealthy families - the Wallenbergs in banking, the Stenbecks in media and telecommunications and the Perssons in retail with Hennes & Mauritz.

In 2004, he took over as chairman of fashion retailer Lindex. He changed the entire management team, recruited a new CEO - a top manager from H&M - and more than doubled margins to over 10 percent. Margins at another early investment, debt collector Intrum Justitia, also nearly doubled.

Altor’s Ekstrom says Gardell doesn’t need to get invited to the best parties, and he takes criticism well.

“He’s the Teflon kid. Nothing sticks on Christer,” he said.

He thinks out of the box, too. In 2012, the sports fanatic launched one of Sweden’s first low-carb beers, Solsidan, named after his own neighborhood, after seeing tennis players in Australia drinking such beverages to stay trim.

Some of his strategies have taken longer to implement.

In Finland, Gardell finally convinced the main owners in Finnish engineering firm Metso Oyj - Finnish state investment arm Solidium and Finnish pension funds - to spin off its pulp, paper and power unit at the start of 2014 after pushing the plan when he first got a seat in 2006.


More recently, when most were cool to Baltic-exposed Swedish bank Swedbank, Cevian grabbed a stake, an investment that outperformed other European banks by over half.

After leaving Swedbank, Cevian bought into Denmark’s biggest lender, Danske Bank, which got a new CEO last year after struggling to recover from the financial crisis. Media speculated that Cevian, its second-biggest owner after AP Moeller Maersk, was behind the change. Cevian would not comment on the matter.

“You really have to take your hat off to him,” said Henrik Didner, who founded Swedish fund management firm Didner & Gerge, the fifth biggest investor in Danske. “He has a sense for the market. He has a good nose for value in a company.”

But for all its successes, Cevian, which employs 40 people in Stockholm, Zurich and London, has not had a perfect run.

Volvo dragged on its overall fund performance such that Cevian was just in line with European markets last year.

Carl Rosen, CEO of the Swedish Shareholders’ Association, believes Cevian, which has owned Volvo for eight years, missed its best chance to offload the company and says Gardell is unrealistic about its future prospects.

“He is talking about having the same kind of profits that you have in (Swedish truckmaker) Scania, and that is like comparing Toyota - a global company with low margins - with Porsche, which is a very specialized manufacturer that can have very high profits.”

Cevian has perhaps more patience than it did in its early days. Unlike most hedge funds, it does not short stocks or use leverage and requires 80 percent of its investors to lock their money in for three or five years at a time.

This year, Gardell said the focus would be on bringing out the potential of many of its companies.

“This is because we believe the conditions to implement some things have improved,” he said.

Already, Volvo’s share price has risen nearly 20 percent since the start of this year. (Additional reporting by Johannes Hellstrom, Jussi Rosendahl in Helsinki; Editing by Alistair Scrutton and Will Waterman)

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