Investor AB

Arsenalsg 8c
Stockholm
S-103 32
Sweden
Telephone: 46 8 614 20 00
Fax: 46 8 614 21 50
Web site: http://www.investorab.com

Public Company
Incorporated: 1916
Employees: 320
Total Assets: SEK 163.65 billion ($14.27 billion) (2003)
Stock Exchanges: Stockholm
Ticker Symbol: INVE
NAIC: 551112 Offices of Other Holding Companies

Investor AB is the flagship of the Wallenberg financial empire—the family has long dominated northern Europe's fi-nancial sector and, through Investor and other investment vehicles, owns as much as 40 percent of the value of companies listed on the Stockholm Stock Exchange (as well as a share of the exchange itself). Once an offshoot of the family's core banking business—now known as SEB—Investor AB has itself become the family's largest business, with more than SEK 163 billion ($14 billion) in assets at the end of 2003. Investor is the holding vehicle for the Wallenberg's primary investments, many of which date back to the beginning of the 20th century. As such the company holds major and often controlling stakes in much of Swedish industry, including Atlas Copco, Electrolux, Ericsson, Gambro, SEB, and WM-data. Together, these six companies represent the vast majority of the company's total assets. At the turn of the 21st century, Investor began seeking to reduce its reliance on "old-fashioned" industrial investments, launching a thrust to increase its number of "New Investments," and especially the high technology sector. Among the group's recent acquisitions is a controlling stake in Hi3G, one of Sweden's high-speed mobile telephone licenses. More than a simple investment group, Investor plays an active role in the operation of the companies in which it invests, appointing CEOs, taking seats on the board of the directors, and steering mergers and acquisitions. With its own listing on the Stockholm Stock Exchange, the company has nonetheless been under pressure from its own shareholders to reduce its large-scale investments in favor of smaller, more flexible, and more short-term stakes. The company is led by CEO Marcus Wallenberg, the fifth generation of the Wallenberg family to oversee its financial empire.

19th-Century Financial Empire

Founded in 1916, Investor AB already represented some 60 years of the Wallenberg family's influence in Sweden's financial and industrial communities. By then, too, the family had already cemented its position as one of the most influential family dynasties in Scandinavia—and in the whole of Europe. Yet, into the 18th century, the Wallenbergs, or Persson, as the family was originally known, remained rooted in Sweden's peasant class.

Upward mobility began for the family, originally from Skärkinds parish, near Norrköping, when Jacob Persson was named constable of the parish in the early decades of the 18th century. Persson later married the daughter of a member of the Swedish clergy—a mark of his improved social standing—and changed his name to the more upwardly mobile name of Wallberg. Jacob Wallberg died in 1758. The influence of the church remained strong in Swedish society through the second half of that century, and both of Wallberg's sons, Jacob and Marcus, entered the clergy themselves, signifying the family's growing prominence. Both Jacob and Marcus then adopted the family name of Wallenberg.

The next generation of Wallenbergs carried on the family's ascension, when Marcus Wallenberg, born in 1774, became Bishop of Linköping in 1819, signaling the family's arrival near the top of Swedish social life. Yet it was the following generation that was to found the family's financial empire. Born in 1816, André Oscar Wallenberg was the youngest son of Marcus Wallenberg. When the elder Wallenberg died in 1833, André left school and began working as a deck hand on a ship trading between Sweden and the United States. Wallenberg then attended the Swedish Naval Academy, graduating in 1835. Yet, with no opening for an immediate appointment into the Navy's officer ranks, Wallenberg returned to the United States, gaining experience on merchant shipping lines.

Wallenberg, however, had already begun developing his business and financial interests, helping to set up Sweden's first steam boat company, and, in 1837, cofounding the Ostergötlands Enskilda Banken. Wallenberg later led that bank's extension, forming branches in Härnosand and Sundsvall in the 1850s, before founding his own bank, Stockholms Enskilda Banken (SEB), in 1856. The following decade, Wallenberg backed the formation of Sweden's first joint-stock limited liability bank, Skandinaviska Enskilda Banken. In the meantime, Wallenberg continued to develop his influence in Sweden's political, social, and economic circles, joining the country's parliament.

André Wallenberg was joined by eldest son Knut, born in 1853. Although Knut Wallenberg was made a member of the family bank's board of directors in 1874, he went to work overseas, namely for Credit Lyonnais in France, where he deepened his banking experience before joining SEB full-time at the end of the decade—in time for the financial crisis that nearly caused the bank's collapse. Yet the bank was able to rebuild in the 1880s, in part by using Knut Wallenberg's French connections in order to place SEB in position as acting broker for foreign capital investments in Sweden. The country's financial crisis had also given the company the opportunity to take significant shares in a number of Sweden's fledgling industrial companies. These shareholdings became the basis of the future Investor AB.

André Wallenberg died in 1986, and Knut Wallenberg took over as leader of the family's financial and industrial empire, which included among other interests a growing shipping business. In 1892, Wallenberg was joined by one of his younger brothers, Marcus Wallenberg, who was named the bank's vice-president that year. Wallenberg, who held a legal degree from Uppsala University, took charge of restructuring and then building up the group's industrial shareholding. Together, Knut and Marcus Wallenberg developed SEB into a two-pronged powerhouse, building up its financial arm while putting together a diversified web of industrial holdings. By the turn of the century, the Wallenberg family was already the most powerful in Sweden, dominating its industrial sector.

Named Sweden's foreign minister, Knut Wallenberg transferred his CEO position to Marcus Wallenberg in 1911. Despite the Wallenberg family's dominant position in Swedish life, SEB was confronted with new legislation, enacted during World War I, which severely restricted the ability of the country's banks to hold long-term shares in Swedish industrial companies. In response to the new legislation, the Wallenbergs set up Investor AB in 1916, transferring its vast industrial shareholdings to the new holding company. From the start, therefore, Investor held majority positions in a number of Sweden's oldest and most prominent industrial companies, such as Scania, Atlas Copco, and others.

Wallenberg Flagship: 1970s

Marcus Wallenberg's growing political commitments led him to step down from the bank's leadership toward the end of World War I. His place was temporarily filled by an outsider to the family, Joseph Nachmanson, who had nonetheless served on the bank's board of directors since 1909 and had become a close confidant of Marcus Wallenberg. Nachmanson was credited with helping to guide the bank through the turbulent economic period after World War I, conducting a conservative investment strategy that prepared SEB for the economic collapse of the late 1920s and early 1930s.

By then, the third generation of the Wallenberg family had taken the leadership of the family empire. Jacob Wallenberg, eldest son of Marcus Wallenberg (Knut Wallenberg had died childless), had spent his early career working for foreign banks before joining SEB as a junior officer in 1918. After Nachmanson died in 1927, Jacob Wallenberg became the bank's president, joined by younger brother Marcus as the bank's vice-president. Nonetheless, Marcus, Sr., remained a strong presence in the family concern until his death in 1943.

As their father and uncle before them, the new generation of Wallenbergs proved complementary partners, with Jacob Wallenberg taking charge of leading the family's banking business, while Marcus Wallenberg developed its industrial holdings, helping to steer the company's growing range of businesses. Indeed, the bank's sound financial health during the Depression era allowed it to gain significant shareholding positions in many of Sweden's most important industrial companies. The family also took advantage of Sweden's acceptance of preferential share levels, in which certain classes of shares were accorded a stronger proportion of voting rights than others. As such, the Wallenberg's were able to parlay an investment stake into majority control of a company—for example, the group's 4 percent equity stake in Electrolux gave it control of nearly 94 percent of the company's voting rights.

Company Perspectives:

Vision: To deliver superior returns to shareholders by establishing Investor AB as a globally recognized entrepreneurial and active owner of companies with high growth and profit potential. Goal: To grow net asset value in excess of market cost of capital over a business cycle.

While the Wallenberg family became world renowned for the heroic action of Raoul Wallenberg during World War II, the family's financial dealings led it into difficulties at the end of the war. In 1939, the Bosch company had approached SEB, offering to sell its American subsidiary to the bank in order to prevent it being taken over by the U.S. government—and turned over to Bosch's American competitors—in the event of the U.S. entry into the war. Jacob Wallenberg agreed to the transaction. At the end of the war, however, the bank was accused of having acted as a front for Bosch's continued ownership of its U.S. subsidiary. Threatened with SEB becoming blacklisted in the United States, Jacob Wallenberg agreed to step down from the bank's presidency, and instead was named chairman of both Investor and a newly formed family investment vehicle, Providentia, established in 1946. Marcus Wallenberg then became SEB president—which, in keeping with banking legislation, barred him from active involvement in the family's industrial investment companies.

Nearly 50 years later, the Wallenberg family's conduct during World War II was once again called into question, when it was revealed that SEB had accepted gold and securities stolen by the Germans from Dutch Jews during the war. At the same time, however, observers recognized that the importance of SEB and Sweden itself—as Germany's sole export market during the war—had played a role in providing the leverage needed to save tens of thousands of lives, not only through Raoul Wallenberg's efforts in Hungary, but also within Sweden itself.

The fourth generation of Wallenbergs joined the family business in 1953, including heir apparent Marc Wallenberg, eldest son of Marcus, Jr., who became an assistant director at SEB in 1953, before taking over as president after his father resigned the position in 1958. Marcus, Sr.'s decision meant that he was now eligible to take a position on the boards of the family's investment companies, Investor and Providentia, leading to a power struggle between him and Jacob Wallenberg.

Marcus Wallenberg ultimately triumphed over his brother, who resigned in 1969, opening his seat on the bank's board of directors to Peter Wallenberg. With Jacob Wallenberg out of the picture, Marcus Wallenberg pushed through a merger agreement between SEB and rival Skandinaviska Enskilda Banken in 1971. Soon after, however, tragedy struck the Wallenberg family when Marc Wallenberg committed suicide—observers suggested that the act came possibly because Wallenberg felt himself inadequate to the task of guiding what was to become the Scandinavian banking giant S-E Banken. The merger went through in 1972.

As a result of the merger, the Wallenberg family lost its majority control of the bank, including control of the bank's voting rights. Instead, Marcus Wallenberg, and younger son Peter, focused their interests on the family's investment companies, including Investor, Providentia, and a new investment vehicle created at the time of the bank merger, Export-Invest. Investor now became the family's flagship business, and, under Marcus Wallenberg's leadership began actively promoting the restructuring of most of the industrial companies under its control, replacing board members and promoting younger CEOs and other management.

Peter Wallenberg took over after Marcus Wallenberg's death in 1982. For many outsiders, the change in leadership marked a final moment in the family's more than 100-year dominance of the Swedish banking and industrial sectors. Indeed, the Wallenbergs were coming under increasing pressure to reform their shareholdings as a new range of foreign investors took significant stakes in former "Wallenberg" companies. Yet Peter Wallenberg rose to the challenge, guiding Investor—and Sweden's industry—into a new era.

Refocusing in the New Century

Investor under Peter Wallenberg drew back from the direct control over the operations of its holdings—in this sense, Wallenberg's strategy was more akin to uncle Jacob Wallenberg's leadership than his father's. The company also developed new competence in administration, market research, and finance, as well as a dedicated mergers and acquisitions team, and other competencies in order to provide support services to its corporate holdings.

Investor now pushed through a steady stream of mergers and acquisitions among its core holdings, resulting in the ultimate creation of the Stora Enso paper giant; the Swedish-Swiss ABB (Asea Brown Boveri), considered the first major cross-border European group; and the creation of Saab-Scania through a merger with GM. The company also divested parts of its longtime holdings, such as Kema Nobel. In 1991, Investor bought out GM's share of Saab-Scania. Meanwhile, the company split off parts of ABB as a new, publicly listed holding company, Incentive, which later developed into medical equipment group Gambro—itself controlled by Investor.

In 1992, Investor became the Wallenberg family's primary investment vehicle, through the takeover of Providentia. In 1994, the company also took over Export-Invest, then formed a new investment subsidiary, EQT, in partnership with SEB. The following year, the company created another investment subsidiary, Novare Kapital, part of its Investor Growth Capital division, which focused on investing in start-up companies.

Key Dates:

1856:

André Oscar Wallenberg founds Stockholms Enskilda Banken (SEB).

1863:

Wallenberg backs creation of Skandinaviska Enskilda Banken.

1916:

Investor AB is formed after new legislation restricting direct ownership by banks of shares in industrial companies.

1946:

Wallenbergs form second investment vehicle, Providentia.

1971:

Merger of SEB and Skandinaviska Enskilda Banken creates S-E Banken but reduces Wallenbergs to minority ownership; Investor now becomes family flagship, joined by new investment company, Export-Invest.

1992:

Investor acquires Providentia.

1994:

Investor acquires Export-Invest.

1995:

Investor forms start-up investment specialist, Novare Kapital.

1999:

Marcus Wallenberg is named president and CEO of Investor.

2002:

Company increases shareholding in most of its long-term investments, including ABB, Electrolux, Ericsson, SEB, and WM-data.

2003:

Company acquires stake in Hi3G, joint-owned by Hutchison Whampoa.

2004:

Investor AB becomes candidate to re-acquire control of Scania after European Commission directs Volvo to sell off its stake in that company.

Investor began a program of reducing its shareholding position in many of its long-term investments. After splitting Saab and Scania into two separate companies in 1995, Investor sold a 55 percent stake in Scania in a public listing on the Stockholm and New York Stock Exchanges. The following year, the company sold a stake in Saab to British Aerospace, then listed the automaker in a public offering. That year also saw the merger of Stora with Finland's Enso, creating Stora Enso, and the launch of the merger between Investor-held Astra with Zeneca, completed in 1998.The following year, the Wallenberg family regained control of S-E Banken, which was then renamed SEB.

Peter Wallenberg stepped down from leadership of Investor in 1997, replaced by Percy Barnevik, who had previously served as chairman of ABB, seconded by another longtime Wallenberg associate, Claes Dahlback. The latter gave up his position in 1999, however, as a new generation—the fifth—prepared to take over the reins of the company. Marcus Wallenberg, then 43, took over as company CEO, and set out to lead Investor—and the Wallenberg financial empire with it—into the new century. Investor now began to concentrate on building up a portfolio of shorter-term "New Investments," such as its purchase in 2003 of a major stake in Hi3G, part owned by Hutchison Whampoa, one of the winners of a high-speed mobile telephone license for the Swedish market. At the same time, Investor moved to solidify its positions in many of its core long-term holdings, including the acquisition of additional shares in ABB, Electrolux, Ericsson, SEB, and WM-data in 2002.

By 2004, Investor's commitment to long-term positions gave it a lift, as a strong performance by Ericsson during the previous year lifted Investor's own value. The company was also buoyed by a decision by the European Commission directing Volvo to sell off its stake in Scania—a move that opened the opportunity for Investor to regain its control over another of its oldest investments. Investor appeared to be a worthy flagship to carry the Wallenberg family empire into a new century.

Principal Subsidiaries

Atlas Copco AB (15%); Electrolux (6%); Ericsson (5%); Gambro AB (20%); Saab Automobile AB (20%); SEB (20%); WM-data (19%).

Principal Competitors

Dioss Holding spol S.R.O. ; Mitsubishi Tokyo Financial Group Inc.; Nissei Sangyo Company Ltd.; Barclays Bank Plc; American International Group Inc.; AXA UK PLC; Tomoegawa Paper Company Ltd.; General Electric Capital Services Inc.; Aviva plc; KBC Bankverzekeringsholding; Prudential Public Limited Co.

Further Reading

Gumbel, Peter, "Putting on Heirs: A New Generation Is Leading Europe's Biggest Family Firms Toward New Profits—and Risks," Time, March 24, 2003, p. A10.

Hopkins, Nic, "Wallenbergs Will Go Back to the Future," Times, October 18, 2003, p. 59.

Kochan, Nick, "Drawing a Bead on a Swedish Dynasty," Euromoney, September 2001, p. 200.

——, "No Longer a Family Affair," Business Week, December 17, 2001, p. 22.

Lindgren, Hakan, Succession Strategies in a Large Family Business Group: The Case of the Swedish Wallenberg Family, paper prepared for the 6th European Business History Association Annual Congress in Helsinki, August 22–24, 2002.

Rubin, Dana, "Old Wine, New Bottle?," Institutional Investor International Edition, October 1999, p. 42.

Shearlock, Peter, "Trim the Empire," Banker, March 1996, p. 22.

—M.L. Cohen