March 18, 2016 / 9:28 AM / in 2 years

Sweden's 'Warren Buffett' eyes bigger investment crown

Swedish businessman Fredrik Lundberg is pictured in this file photo received March 18, 2016. REUTERS/Christine Olsson /TT NEWS AGENCY

STOCKHOLM (Reuters) - In a country where family-run business spheres dominate the landscape, Fredrik Lundberg, often referred to as Sweden’s Warren Buffett, is tackling bigger rivals on several fronts.

A new center dedicated to Sweden’s Nobel Prize is planned near his company’s headquarters on one of Stockholm’s Baltic promenades, with funding from the Wallenberg investment empire and the Perssons who created retail giant Hennes & Mauritz.

Lundberg’s own firm and its real estate company, whose deputy CEO is his daughter, have objected to the scale of the proposed metal and glass building, citing concerns about their sea view and the value of their century-old properties. The Nobel Centre says its architects have cut it back by 20 percent.

The hitherto Sweden-focused Lundberg began competing directly with the Wallenbergs and others last year when he became chairman of Industrivarden (INDUa.ST), which backs firms that employ almost half a million people around the world in everything from telecommunications to banking.

He saw the opportunity to turn it around after a corporate spending scandal and a decade of dismal returns; bankers say there may be asset sales at the likes of steel manufacturer SSAB (SSABa.ST) and truckmaker Volvo (VOLVb.ST) as he brings down debt.

The 64-year-old magnate, who inherited his construction and property holding Lundbergforetagen (LUNDb.ST) from his father in the 1980s, earned the Buffett moniker with steadily rising returns: they totaled 160 percent over the past 10 years, well above Sweden's index. reut.rs/22g8HFA

Analysts say his track record bodes well for Industrivarden whose return over 10 years only matched Stockholm’s blue-chip index .OMXS30, but his rivals are formidable.

Other investment companies such as Wallenberg-backed Investor Group (INVEb.ST) and Kinnevik (KINVb.ST), backed by the Stenbeck family, have returned about 180 percent to shareholders over 10 years, albeit more unevenly, as they tested unchartered areas like e-commerce and put more money into private equity.

UNCLE FREDRIK

“The Wallenbergs have built over 150 years a contact network across the whole world which they have grown and constantly invested in,” said Ronald Fagerfjall, an author who has penned several books on Swedish business and the Wallenbergs.

“Lundberg is standing at the start of that journey, if it is one he wants to take.”

One of Sweden’s richest men, Lundberg moved his family to Switzerland in 1985 for almost a decade to escape high taxes but is now firmly based at home, where his conservative reputation has given him the nickname “Farbror Fredrik”, Swedish for “Uncle Fredrik”.

Industrivarden has eight portfolio companies and major stakes in telecommunications giant Ericsson (ERICb.ST), Volvo and lender Handelsbanken (SHBa.ST). Together with Investor Group it is involved in more than half of the market capitalization of Stockholm’s main index.

Lundberg stepped in as chairman in May after building up a total 22.1 percent voting share since 2002, stirring speculation in Swedish media he wants to merge the company with his own, an investment firm with far less debt and less cyclical holdings.

“No, it is not happening at all,” he told Reuters after Lundbergforetagen reported earnings last month, saying analysts who saw synergies between the two companies were wrong.

“The different portfolio companies have their respective agendas and don’t have anything to do with one another,” Lundberg said. “What we are doing is capital management.”

CONTROL

His company is 40 percent invested in real estate and has exposure to engineering group Sandvik, outdoor equipment maker Husqvarna and Industrivarden, while the bigger investment group has a complicated series of crossholdings known as “the System”.

“We get from Lundbergforetagen’s perspective a diversification of our assets in big companies which we wouldn’t have been able to do on our own directly,” he said. “One can say that Lundbergs and Industrivarden complement each other.”

He has cleared out the old guard from Industrivarden and recruited 45-year-old private equity executive Helena Stjernholm, who is known for being sharp and personable, as CEO in August.

“We are more specific and more concrete. And yes, more of an activist,” Stjernholm told Reuters, saying the group would stay in listed companies with a weight towards engineering and plans to enter smaller companies.

“You have to be very clear about what you want to achieve.”

Investors want activism after reports of corporate excess last year at hygiene products maker SCA (SCAb.ST), in which Industrivarden holds a 10 percent stake, the largest.

Newspapers said SCA flew in chefs and hunting dogs for an executive function in northern Sweden and the corporate jet returned empty to Stockholm to pick up a forgotten wallet, leading to the ousting of Industrivarden executives.

With Lundberg, the main perceived danger is micromanagement. Asked about this, Roger Ekstrom, Lundbergforetagen’s press chief, said: “He wants to have control - macro to micro. This is not management by fear.”

One senior former employee said he had not found it a problem. “I quickly realized the way to handle it was to keep him well informed,” said the source.

Lundberg was not overly concerned by quarterly reporting or short term share moves, he said. “His leadership style is about being informed but not necessarily taking over... He doesn’t like surprises.”

To minimize surprises, Industrivarden recently set a target to bring gearing down to 0 to 10 percent from 15 percent.

Standard & Poor’s upgraded Industrivarden last month due to a perceived lower risk profile and M&A bankers are lining up pitches, saying SSAB (SSABa.ST) could do a rights issue or dispose of its construction business to improve its finances.

Swedish business daily Dagens Industri speculated this month Industrivarden could sell its share in Ericsson, one of its original holdings, or trim its share of Handelsbanken.

Mining equipment maker Sandvik (SAND.ST) and Volvo have struggled but now have new CEOs - two recruits from within the Wallenberg sphere who are driving change. SCA could spin off its forestry assets and Volvo could sell its construction business, banking sources say.

“I think we will also look into divestments if the opportunity looks right,” Stjernholm said. She declined to offer details but said that while the company has the luxury of an “evergreen timetable” it will not hold companies “forever”.

It has already told Ericsson, whose largest shareholder is Investor, to improve profitability in several of its businesses.

This week, Nordea analyst Elias Porse raised the bank’s recommendation on Industrivarden, what it called a “once-sleepy investment company”, to a buy from hold in a note to investors entitled “A new S(tj)eriff in town”.

Additional reporting by Sven Nordenstam; editing by Alistair Scrutton and Philippa Fletcher

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