Steel Mills

Cevian Capital: White Knight or Grim Reaper for ThyssenKrupp?

October 8, 2013

Activist investor Cevian Capital announced it has increased its stake in ThyssenKrupp AG from 5.2 percent to 6.1 percent. You may be familiar with the definition of an activist as “a vigorous advocate of a cause” but an activist investor is not quite the same.

Investopedia defines an activist investor as: An individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company. Companies with excessive costs, poor management, or other problems are generally targets for activist investors—a pretty fair description of ThyssenKrupp AG and a reason to speculate on whether Cevian’s investment may lead to a break-up of the German steelmaker.

Cevian Capital was founded in 2002 by Managing Partners Christer Gardell and Lars Forberg. In 2006 it launched its second fund, Capital II, and currently manages more than $10 billion of assets. According to eFinancial News, the Cevian Capital II fund gained 130.2 percent between its inception in 2006 and June 2013. The fund rose 25 percent in 2012 and has gained 1.8 percent in the first half of 2013. Among Cevian’s assets are German industrial services firm Bilfinger, Finnish engineering company Metso and shares in Danske Bank and Volvo Group.

With advisory offices located in Sweden, Switzerland, and the U.K., the company has come under criticism in the past for breaking up companies. In Sweden, Cevian Capital is known as the “butcher” for investing in companies, securing board seats, and then pushing for sweeping changes that often includes firing directors, selling assets and replacing managers. Changes that may distress the company targeted but that generally lead to an increase in share price for that entity.

As of the end of September 2013, Cevian Capital had 12 publically-disclosed investments that all rose in share price when Cevian’s stake was divulged. The trend held true for ThyssenKrupp whose stocks climbed 5.7 percent after Cevian increased its TK shares to 5.2 percent on September 25.

Cevian Management

Founder and managing partner Christer Gardell has been called a “corporate pirate” and “the Gordon Gekko of Sweden” for demanding the ousting of executives and divestment of assets after investing in floundering companies. Some of the “corporate restructuring” that Cevian and Gardell engineered are as follows.

In 2004 Gardell and partner Forberg acquired a three percent share in Skandia and, with the help of activist investor Carl Icahn, arranged the sale of Skandia to Old Mutual Plc for $9 billion dollars. Shareholders unsuccessfully tried to stop the sale and the company was sold, doubling the value of Cevian’s stake which Gardell promptly sold.

Gardell urged the sale of divisions of Volvo after Cevian invested in the automaker in 2006. In 2007, with only a 1.5 percent share in Sweden’s largest telephone company, Telia Sonera, he convinced shareholders to fire half of the board of directors.

In 2012 Cevian increased its share of Bilfinger Berger, a German industrial services and construction group. Cevian said it did not intend to take over the company but “we are impressed by the decisive and successful repositioning of Bilfinger… and we support the path taken by the company,” said Jens Tischendorf, partner in charge of Cevian’s German division. Tischendorf was elected to the supervisory board and Cevian now holds 18.86 percent of the company. In May last year, prompted by a Cevian initiative, Bilfinger announced it would divest its concessions business (a portfolio of 16 public private partnership projects).

In 2012, holding 20 percent of the shares, Cevian backed a demerger of Cookson Group Plc into Alent, a specialty chemicals company, and Vesuvius, a producer of glass and ceramic products maker for the steel industry. Gardell and Forsberg secured seats on the boards of the two new companies.

Currently, Cevian, with the backing of Carl Icahn is trying to get G4S, a UK-based security solutions company, to sell off its cash services business. Cevian owns a 5.11 percent stake in the company that has been plagued by scandals including failing to provide 3,500 promised personnel for the Olympic Games.

A company associated with Carl Icahn is one to be feared. Icahn was described by Forbes “as the most disruptive individual in business, with a hand in almost every corporate story in America.” Known as a formidable opponent in hostile takeovers, Icahn has worked with Cevian on four occasions, the latest the G4S deal. It is unknown what part, if any, Icahn may play in the ThyssenKrupp venture.

So far, Jens Tischendorf has said of the ThyssenKrupp investment, “We fully support the management’s strategy and see great potential for the development of the company.”

It sounds an awful lot like what he said about Bilfinger… We will have to wait and see if Cevian Capital rescues ThyssenKrupp or hastens its disintegration.