Christer Gardell, Cevian Capital founder, on clearing out boards
Europe’s biggest activist investor forces radical change
He is dressed in the Swedish business-casual outfit of jumper and shirt. He is softly spoken and is not inclined to send angry letters to chief executives. In short, Christer Gardell does not behave like the stereotypical activist investor.
But Mr Gardell, co-founder of Cevian Capital, is Europe’s biggest activist — and one of the most influential in the world. He has shaken up boardrooms across the continent, taking aim at companies from Ericsson to Danske Bank and ThyssenKrupp to ABB, forcing them to make often radical changes.
He is mild-mannered compared with his US counterparts, such as Carl Icahn and Dan Loeb. Yet Mr Gardell is more committed than ever to the cause of activism. He argues that the rise of index funds owning more and more of companies could destroy capitalism.
“We are probably in a period where we will have more activism in Europe. Frankly, in an environment where passive index funds have taken such big market share, it is welcome for capitalism,” he says, sitting in his modest office in central Stockholm.
Cevian, which has about $15.5bn in assets under management, has long had large swaths of northern Europe largely to itself. But there are signs that Cevian’s rivals in the US are looking to Europe. Mr Loeb recently made the biggest move of his career by buying $3.5bn of shares in Nestlé, the Swiss consumer goods group, while Elliott Advisors, another large US activist, has targeted Akzo Nobel, the Dutch paints company.
Mr Gardell says there are enough targets to go around. Strikingly, he argues one of the main reasons for the move is that Europe is more fertile territory than the US.
“Probably the most attractive country for shareholder protection is Sweden,” he says. “I told Carl Icahn once about corporate governance standards in Europe and he replied: ‘This must be the shareholder paradise’.”
This is reflected in the contrasting styles of activism on either side of the Atlantic. Mr Gardell this year took a 5.6 per cent stake in Ericsson, the Swedish telecoms equipment maker, and immediately get a seat on the nomination committee. Such a position is key for Cevian, because it can influence who sits on the board. A few weeks later, one of Mr Gardell’s main targets — Leif Johansson, the chairman — stepped down without Cevian having to make much in the way of public statements.
In the US, by contrast, corporate governance is often protective of management, meaning shareholders have to make a noise. Mr Gardell says: “They have to take a more aggressive approach. It’s not a style; it’s more a product of the US corporate governance approach. We see them come into Europe with a less shouty approach.”
Mr Gardell set up Cevian 15 years ago with Lars Förberg, a former private equity executive whom he first met in the 1990s. Initially, they focused on Scandinavia. For the past decade Cevian has widened its horizons to Germany, Switzerland and the UK.
Wherever it invests, the approach is the same. Cevian buys stakes of between 5 and 20 per cent in companies it believes to be undervalued, holding its shares for about five to seven years. It then works with boards to unlock what it sees as the hidden value in the company, often by splitting the group up.
It often does this by encouraging change at board and management level. Mr Gardell points to Volvo Group, the Swedish truckmaker, where it swapped out most directors and the chief executive. Some businesses were sold off and the company focused its core trucks business. “It sounds simple: the focus is to improve the businesses,” he says.
Mr Gardell says he sees no reason to go in the opposite direction to the US as there are plenty of opportunities still in Europe. As well as the $1bn Ericsson stake, two more companies are being targeted, one that Cevian is close to disclosing and the other in which it has just started building a stake.
It is a patient game. Mr Gardell says Cevian had Ericsson under observation for a decade before moving when shares became cheap. Returns for investors have been above average, with Cevian making a total 19.4 per cent last year.
But there have been hiccups, most prominently in its investment in Bilfinger, a German construction group. Mr Gardell says the 29.5 per cent stake — its first investment in Germany — was “a mistake” because Cevian failed to do a thorough analysis. It underestimated the problems of the deals that had built Bilfinger. “If it had been in Sweden we would have known we should have been careful. It was a lesson learnt to get into a new market,” he adds. Cevian retains a 29.5 per cent stake in the company.
It has not stopped Cevian from going into other, seemingly more complicated, situations in Germany such as ThyssenKrupp, the highly traditional steel-to-elevators conglomerate in which it owns a 15.1 per cent stake. Mr Gardell says its corporate governance may not be as straightforward as at Scandinavian or British companies but that “the price level compensated for it”.
Behind this is a belief that activism is a “relatively local” business. “We need to know the people, have networks, have a corporate governance tradition we’re comfortable with,” he says. “In some markets, the language is important,” he adds. “It explains why some US activists may struggle in Europe.”
There are still fights closer to home, however. Mr Gardell is particularly vexed by the system of A and B shares in Sweden, which gives owners of A shares a bigger share of voting rights.
“It’s very difficult to challenge incompetence,” Mr Gardell says. In what could be his motto, he adds: “It’s the basis of capitalism: if something isn’t working, you should fix it.”