Swedish Match AB

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Swedish Match AB

Rosenlundsgatan 36
SE-118 85
Stockholm
Sweden
Telephone: (46)-8-658-02-00
Fax: (46)-8-658-62-63
Web site: http://www.swedishmatch.ch

Public Company
Founded: 1917 as The Swedish Match Company
Employees: 10,000
Sales: $1.22 billion (2000)
Stock Exchanges: NASDAQ Stockholm
Ticker Symbols: SWMAY SWMA
NAIC: 312229 Other Tobacco Products Manufacturing; 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing; 339999 All Other Miscellaneous Manufacturing.

Based in Stockholm, Swedish Match AB is the leading global manufacturer of matches and the third-largest manufacturer of disposable lighters. The company also markets an array of tobacco products other than cigarettes. It produces pipe tobacco and snuff, chewing tobacco, cigars, tobacco rolling papers, and filters. Some of its well-known brands include Cricket lighters, Swan matches, White Owl cigars, and Red Man, Durango, and Beech Nut chewing tobacco. During the early 1900s Swedish Match became one of the first companies to achieve a truly global presence. Its products are still sold worldwide, with particularly strong markets in Europe and North America. The United States, Germany, France, and the Netherlands are Swedish Match’s top markets.

1890s Origins and Early Plans for Global Dominance

Ivar Kreuger founded Swedish Match. Ivar Kreuger was an internationally renowned industrial magnate and a controversial figure who was regarded as a scoundrel by some. He was born in 1880 in Kalmar, a city in southern Sweden. His family owned and operated a match factory that his grandfather had started. The match industry was relatively young when the company was founded; matches had been produced commercially only since the early 1800s, but a large market had developed since matches were commonly used at that time to light kerosene lamps and gas stoves. By the late 1800s the Swedish match industry was employing 7,000 workers and producing about 40,000 tons of matches annually.

The early Swedish match industry was dependent on international suppliers and buyers. Aspen wood, for example, was supplied primarily by Russia. Chemicals such as potassium chlorate, phosphorus, and paraffin were purchased mostly from Great Britain and Germany. Similarly, Germany and England were the greatest export markets for Swedish matches. In fact, Sweden exported about 85 percent of the matches it produced. World War I disturbed the import and export dynamics because supplies were cut, and some countries imposed restrictive trade barriers. Nevertheless, by the time Ivar Kreuger entered the business, the foundation for his international empire had been established.

When Ivar Kreuger began his operations in the early 1910s, Sweden had assumed a global leadership role in the match industry. That lead was largely attributable to technological breakthroughs. In 1884 Gustaf Eric Pasch of the Swedish Royal Academy of Science invented the safety match. It utilized red phosphorus (instead of more toxic yellow phosphorus), which was applied to a striking surface rather than the match head. The result was a much safer match. Early match-making machines—what we now term lighters—had emerged as well.

Kreuger exhibited little interest in his family’s enterprise as a young man. His business cunning and penchant for overseas adventure, however, were evident from an early age. As a boy Kreuger stole final term papers from the principal’s office and sold copies to students for the equivalent of five cents apiece. After his schooling, in which he studied engineering, Ivar traveled the globe, taking jobs in South Africa, Canada, Germany, and the United States. His brother, meanwhile, operated the family’s struggling match business. Unfortunately, the match industry at the time suffered from the growing popularity of electric lighting. Only the increasing number of cigarette smokers, who were major purchasers of matches, prevented further damage to the industry.

Kreuger returned to Sweden when he was 28 years old. He and a fellow engineer, Paul Toll, started a real estate and construction company. Kreuger & Toll was successful, but Kreuger was soon sidetracked by opportunities related to the family business.

The Swedish match industry was highly consolidated by that time. One giant company, Jonkoping & Vulcan, controlled 75 percent of the market, and the Kreugers were one of a few small players still competing. Kreuger was intrigued by the challenge of overcoming Jonkoping’s dominance. But he also had greater designs—he believed that he could parlay Sweden’s technological advantages into global dominance of the match industry.

Kreuger’s business savvy, although ethically questionable, was undeniable. During the early 1910s he managed to bring together most of the remaining Swedish match companies, including his family’s, into a single organization called United Match Factories. Kreuger artificially inflated the value of United, making it look as though his company had much more capital than it actually possessed. He used that artificial value to back his takeover of Jonkoping in 1917, thus effectively establishing a monopoly in his home country. When World War I ended a year later, he shifted the focus of his newly formed holding company, The Swedish Match Company, to the European mainland.

During the 1920s Kreuger embarked on an aggressive acquisition campaign, striking deals and snapping up match factories all over Europe. Although his business acumen was revered at the time, his bid for industry dominance would later earn him a reputation for chicanery. For example, it was discovered that he sent secret agents to companies in which he had an interest. The undercover proxies made extremely low offers to buy the enterprises. Kreuger followed these agents in and offered a higher—though still low—price. The practice allowed him to snag new factories at deflated prices. In addition, he often secretly purchased interests in competitors in an effort to avoid national restrictions related to monopolies and foreign ownership.

By the late 1920s, the industrious Kreuger had amassed a huge match-manufacturing network. He controlled a significant share of the match business in Hungary, Yugoslavia, and other East European countries and acquired major stakes in leading British and American match companies. Kreuger also built new factories in countries like India. More importantly, Swedish Match effectively claimed control of the match industries in Norway, Denmark, Holland, Finland, and Switzerland. The company also diversified into other business areas during this time. By the end of the 1920s, in fact, Kreuger controlled a telecommunications company, a pulp and paper enterprise, and a mining company that owned the third-largest gold deposit in the world.

Kreuger’s empire churned out 2.8 million cases of matches annually by 1929, making up about 40 percent of total world match output. But leadership in the match industry was only part of the Swedish Match story to that point, for Ivar Kreuger’s international reputation grew significantly after the conclusion of World War I. Kreuger used part of his massive fortune to make loans to needy national governments battered by the war. Although many of the loans were used to secure permission for Swedish Match to develop a monopoly in the borrower’s country, many observers nevertheless viewed Kreuger’s postwar lending to financially troubled governments as magnanimous. By 1930 Kreuger had doled out more than $350 million in loans to a dozen different countries.

In less than a decade, Kreuger had built one of the largest international companies ever created. His business acumen had achieved legendary status. Hundreds of millions of dollars flowed through his diverse holdings of companies, which were organized under four divisions: Swedish Match; Kreuger & Toll; International Match (New York); and Continental Investment (Liechtenstein). Kreuger’s enviable reputation as a socially conscious business leader continued to grow, particularly after he made a celebrated $30 million loan to Germany to help it pay war reparations. That move earned him the title of “the savior of Europe” from some politicians at the time.

Nevertheless, neither his success nor his reputation saved him. Kreuger shocked the global financial community when he shot and killed himself on March 12, 1932. His suicide in his Paris bachelor apartment capped the end of his two-year effort to keep his collapsing empire glued together. The previously hidden weaknesses of Kreuger’s mammoth enterprise were exposed following the global financial meltdown spurred by stock market crashes around the world. As the value of his companies plunged, Kreuger’s personal liabilities ballooned past the $250 million mark, and his companies were unable to meet their obligations. Kreuger took desperate measures, even going so far as to forge $142 million worth of Italian government bonds and promissory notes. Kreuger himself forged the signatures needed on the notes, but misspelled the names. The ruse failed, and Kreuger’s reputation was damaged.

Company Perspectives:

Swedish Match produces and markets an extensive range of snuff, chewing tobacco, cigars, and pipe tobacco, as well as matches and disposable lighters. Swedish Match core business focuses on its broad and deep knowledge of snuff and chewing tobacco (smokeless tobacco) and cigars and pipe tobacco (brown tobacco). These products constitute what are known as niche tobacco products or OTP (Other Tobacco Products). Swedish Match shall strengthen its position as a leading, global player in the area of niche tobacco products, particularly in the European and North American markets.

It was later discovered that Kreuger’s dynasty was built partially on overvalued assets and deceptive accounting practices. Although his business acumen was undeniable, Kreuger had consistently engaged in questionable reporting practices in an effort to expand his holding company. “Throughout his bizarre career,” wrote Robert Shaplen, author of the 1960 biography Kreuger, “Kreuger alone supplied the figures for the books of his various companies, and he mostly kept them in his head.” Backing that assertion was Allen Churchill’s The Incredible Ivar Kreuger, who noted that a former secretary of Kreuger’s claimed that Kreuger once dictated the text of the annual reports for his four companies in a single afternoon: “I accounted for it by the fact that I had often been told that he was a genius,” she explained.

To Kreuger’s credit, he was a highly intelligent businessman and financier. Many of his defenders contend that, although his dealings may appear shady in retrospect, at the time many of his activities represented the norm. Shaplen’s biography related the following excerpt from a statement made by Kreuger to Bjorn Prytz, a Swedish tycoon and diplomat: “In olden times, the princes and everyone would go to confession because it was the thing to do, whether they believed it or not. Today the world demands balance sheets, profit-and-loss statements once a year. But if you’re really working on great ideas, you can’t supply these on schedule and expose yourself to view. You’ve got to tell the public something, and so long as it’s satisfied and continues to have faith in you, it’s really not important what you confess.”

Picking Up the Pieces After Krueger

Teams of attorneys, bankers, and accountants labored for four years sorting out Kreuger’s affairs and divvying up the remains of his companies after his death. The Price, Waterhouse accounting firm finally calculated that Kreuger had inflated the earnings of his companies by more than $250 million between 1917 and 1932. Millions of dollars were never accounted for, and Ivar’s brother, Tortsen, was sent to jail for 18 months. After his release, Tortsen spent much of the remainder of his life trying to prove that Ivar was murdered. Tortsen’s story fell on deaf ears, and the company was wrested from Kreuger-family control.

The Wallenberg family of Sweden came to the rescue of Swedish Match. In an agreement that involved a transfer of $15 million from Stockholm to New York, Jacob Wallenberg was able to gain control of the injured enterprise. The company lost its monopoly contracts with foreign governments and was diminished in size and strength. Nevertheless, Kreuger had amassed massive holdings in the match industry that allowed Swedish Match to sustain its market leadership.

Following World War II and throughout the mid-1900s, Swedish Match tried to expand its match business. Swedish Match purchased the Cricket disposable cigarette lighter division of Gilette in the mid-1980s, a purchase that—combined with its own Feudor and Poppell lighter brands—gave Swedish Match a hefty 15 percent of that global market. The company’s entrance into the cigarette lighter business illustrated how much Swedish Match had changed since Kreuger’s reign. Indeed, in an effort to squelch competition from lighter manufacturers, Kreuger had succeeded in getting some countries to ban the use of lighters in public—those laws lingered on the books for several years in a few nations.

Diversified Company in the 1980s

By the late 1980s matches made up less than 25 percent of Swedish Match’s global sales. Still, the company remained the largest manufacturer of matches in the world and continued to improve its position in the world market. In 1980, for example, Swedish Match bought out Universal Match, the largest producer of matches in the United States. In 1987 it acquired Britain’s second-largest match manufacturer, Wilkinson Sword. The latter purchase gave Swedish Match control of a leading 25 percent of world match markets. Going into the early 1990s, Swedish Match employed more than 25,000 workers globally and generated annual revenues of more than $17 million, about $250 million of which were attributable to U.S. sales.

The company also diversified into several other arenas. Swedish Match company purchased Tarkett, making it the second largest manufacture of floor coverings in the world by the late 1980s. Swedish Match also acquired cabinet makers Marbodal and HTH, and door maker Sweedor, which made it the biggest producer of doors in Sweden. Other acquisitions included forays into packaging material and razor blade industries.

In 1988, Swedish Match was acquired by Stora Kopparbergs Bergslags AB, a diversified company and among the largest forestry companies in Europe. Stora reportedly paid SKr 5.9 billion for Swedish Match, in its efforts to enhance its line of raw materials with consumer products businesses. Stora’s parentage was short-lived, however, as Swedish Match was sold to Volvo in 1990.

Key Dates:

1917:: Ivar Kreuger establishes company and gains the match monopoly in Sweden.
1932:: Kreuger commits suicide, leaving a financially troubled company; the Wallenberg family of Sweden takes over company.
1980:: The company buys out the U.S. match manufacturer Universal Match.
1988:: Swedish Match is acquired by Stora Kopparbergs Bergslags AB.
1990:: Volvo buys Swedish Match.
1996:: Volvo initiates initial public offering of Swedish Match.

Focusing on Niche Tobacco Products in the Late 1990s

Volvo held on to Swedish Match for only a few short years, before that company decided to jettison most of its non-automotive subsidiaries. Volvo eventually spun Swedish Match off to its shareholders in 1996, in a deal worth SKr 10.1 billion. In 1998, leadership of the company passed to Lennart Sunden. The new CEO was known for his skill in marketing. He helped focus the company’s long-term strategy on non-cigarette tobacco products and smoking accessories. Key products would be smokeless tobacco, cigars, matches, and lighters. Consequently in 1999 the company made one significant divestiture and a major acquisition. In June, Swedish Match announced the sale of its entire cigarette division to Austria Tabak, for SKr 4.8 billion ($560 million). Swedish Match was Sweden’s lone cigarette manufacturer at that time, where its brands made up almost half the market. It also had a large share of the Estonian cigarette market. Cigarettes were not a business the company could compete in globally. Cigars, however, were another matter. At virtually the same time it was disposing of its cigarette operations, Swedish Match spent $200 million to buy the mass-market lines of the Virginia cigar manufacturer General Cigar Holdings Inc. This purchase gave Swedish Match the well-known brands White Owl, Tiparillo, Tijuana Smalls, and GarciaVega. By that time, North America accounted for about one-fifth of Swedish Match’s sales, and it hoped to use the General Cigar buy to help increase its U.S. sales, particularly in urban markets. A year later, Swedish Match made another offer to General Cigar, this time to purchase a 64 percent interest in the company. Swedish Match’s leading product in the U.S. market was chewing tobacco, where it marketed the venerable Red Man brand. In 2000 the company made another major purchase in the North American market, paying $165 million for the chewing tobacco brands of National Tobacco Company. National Tobacco was a private company based in Louisville, Kentucky, that made about $50 million annually off chewing tobacco. It sold Swedish Match its Beech-Nut and Durango brands. This was expected to give the Swedish company over half the U.S. chewing tobacco market share.

Another key product in Swedish Match’s stable of niche tobacco products was snuff. Snuff was a tobacco product that was used in Sweden as a passive way of absorbing nicotine. A thumbnail-sized portion of it sat in the mouth—it was not snorted or chewed. With the ascension of Lennart Sunden as CEO in 1998, the company began to change the way it presented snuff. It became not just another tobacco product but a smoking cessation aid. By 2000, Sweden had 900,000 snuff users, and according to Swedish Match, over half were former smokers. With smoking becoming less socially and medically acceptable, Swedish Match marketed its snuff as a neat, safe, effective way to enjoy tobacco while cutting down on or quitting cigarettes. The company began packaging snuff in pre-measured packets something like a teabag, so that the user did not have to contend with unattractive tobacco juice or shreds. The company saw a significant rise in its snuff sales with the new marketing campaign.

In other markets abroad, Swedish Match remained a strong seller. It dominated the cigar market in the Netherlands, where it had a host of established brands plus the new ones it bought from General Cigar. In England, the company found that, as cigarettes became more expensive, accessories for hand-rolling were a growing and profitable category. Its Swan brand had a line of papers, matches, lighters, and filters. These items had a profit margin of more than 40 percent, and the hand-rolling category was the fastest-growing segment of the entire tobacco products market in the United Kingdom. Swedish Match re-launched its Swan brand in 1999, aiming it more at younger smokers. Overall, Swedish Match seemed to be keeping finely tuned to its stated objective of growing its niche tobacco and smoking accessories markets, particularly in Europe and North America.