March 5 (Bloomberg) -- The IKEA retail empire Ingvar Kamprad started almost 70 years ago has amassed a fortune that Bloomberg values at more than $40 billion and makes him the richest man in Europe, and one of the world’s five wealthiest men.
The Bloomberg Billionaires Index, a daily ranking of the world’s richest people, shows that Kamprad maintains control over the business through a network of holding companies and legal entities established more than 30 years ago.
The valuation is based on IKEA’s annual financial performance report. The company said it earned net profit of $4 billion in 2011, had operating income of nearly $5 billion and gross profit of more than $15 billion on $34 billion in sales.
The results were then compared against eight publicly traded U.S. companies including Target Corp., Bed Bath & Beyond Inc., and Pier 1 Imports Inc., as well as Wim Plast Ltd., a global furniture retailer based in Mumbai, and Hong Kong-based Royale Furniture Holdings Ltd.
Bloomberg took the market value, preferred equity, and debt less cash and equivalents to generate the enterprise values of these companies. It then calculated their enterprise value-to-earnings before interest, tax, depreciation and amortization, enterprise value-to-ebit, enterprise value-to-sales, and price-to-earnings ratios. Two classes of comparison were used, one to reflect IKEA’s size and another to capture the specifics of furniture retailers. An average multiple of each grouping was then applied to IKEA’s 2011 performance.
Discount for Complexity
The calculation, which also applies a 20 percent liquidity discount due to the complex ownership structure Kamprad has created, values IKEA at $36 billion.
Kamprad declined to comment for this article, referring queries to his representatives. They said he isn’t the owner of the company he founded as a local and mail-order business in 1943 in the Småland region of Sweden, after relinquishing his shares in IKEA in the 1980s.
“Ingvar Kamprad is not interested in money and that is clear from the way he has structured the ownership of IKEA,” said Per Heggenes, spokesman for Stichting INGKA Foundation, a Dutch entity that owns all the shares in INGKA Holding BV, which in turn owns about 90 percent of IKEA stores worldwide.
In 1982, Kamprad gave his IKEA stake to the foundation, for “supporting innovation in the field of architectural and interior design,” according to its founding statute registered with the Chamber of Commerce in Amsterdam. Seven years later he established a second foundation, the Interogo Foundation, based in Liechtenstein, which was given ownership of the rights to the IKEA concept.
A second component of Kamprad’s wealth is the Ikano Group, the family’s private investment vehicle, based in Luxembourg, which adds more than $2 billion. Ikano is chaired by Peter Kamprad, one of Ingvar Kamprad’s three sons, and runs consumer credit, asset management, real estate management and insurance businesses, and owns four IKEA franchise stores in Asia.
IKEA’s structure has been the subject of press scrutiny during the past decade, including an hour-long documentary by Assignment Investigate, a news program that aired on Sweden’s SVT television network last year, as well as a 2006 analysis in The Economist newspaper.
Kamprad moved out of his homeland in the 1970s in an effort to keep the company private, something he said he couldn’t do with the tax regime in Sweden at the time, Heggenes wrote in a statement.
Other wealthy Swedes who did the same include Hans Rausing, who ran the Tetra Pak packaging empire founded by his late father and left Sweden in the early 1980s. Stefan Persson, chairman of clothing giant Hennes & Mauritz AB, chose to stay in Sweden after the government changed the tax rules in the 1990s to exempt private shareholders controlling more than 25 percent of a company from paying wealth tax on their holdings.
At the time it was scrapped in 2007, the country’s wealth tax imposed a 1.5 percent levy on Swedes whose capital exceeded 1.5 million kronor ($228,000).
In 2009, Kamprad went to court to change Stichting’s Ingka IKEA’s philanthropic goal to one that provides opportunities for youth in the developing world. According to Heggenes, between 2009 and 2011, the IKEA Foundation made donations worth about $235 million to support disaster relief and provide philanthropic aid in Kenya, Somalia, Haiti and China. Last year it announced the goal of reaching an annual donation level of $135 million. A separate foundation, the Kamprad Family Foundation, supports research and education, mainly in the Småland region of Sweden.
IKEA says that arrangements mean that the value of the company shouldn’t be credited to Kamprad.
“The purpose of the foundation is to reinvest funds into the business and to establish reserves for a rainy day,” Heggenes said of the Interogo Foundation. “Our other purpose is philanthropic.”
According to experts on trust and foundation law in Holland and Liechtenstein, the law is not so clearly defined. The structure doesn’t block the possibility of a sale of the assets, though it does complicate the transaction, said Ep Hannema, a corporate attorney and head of the Amsterdam office of Norton Rose LLP, an international law firm with an expertise in corporate finance and private equity.
“The idea with a structure such as this is to create continuity so that if the founder dies, no manager who owns shares or family member who owns shares can take control individually,” Hannema said. “Downstream there are possibilities for anyone who wants to, to minimize the amount of profits that flow to the foundation. It’s just not very clear to the outside world.”
In January 2011, Kamprad said in a statement that IKEA is arranged to have an “optimized tax structure” that allows “flexibility to use funds, that have already been taxed in one market, in new markets for further business development without the additional burden of double taxation.”
Kamprad registered Ingka IKEA in Holland along with two other Dutch foundations, the IKEA Foundation, a philanthropic arm, and Stichting IMAS Foundation, which manages dividends earned from IKEA’s main franchisee, INGKA Holding.
IKEA’s current franchise agreements call for 3 percent of gross sales to be paid to the franchisor in exchange for licensing rights and services. The franchisor is Interogo’s Inter IKEA. Interogo, in turn, is controlled by Kamprad.
Bloomberg obtained Interogo’s founding document, which establishes the foundation’s by-laws, purpose, management structure and ownership. A companion document spelling out further details of the agreement between the founder and Interogo wasn’t obtained. The company has confirmed that Interogo is controlled, though not owned, by the Kamprad family.
Interogo’s supervisory board consists of Ingvar Kamprad, his son Mathias, and five associates with appointment power for board members resting with Kamprad. Upon his passing, or his leaving the board, members can self-appoint their own successors, though any family members on the board have veto rights over any selection.
Interogo’s by-laws also make provisions for the board to unwind the structure, if “the purpose of the foundation cannot reasonably be achieved.” Unwinding the structure would require board approval and, if not controlled by a single individual, would require the consensus of the managing group.
Also, should the foundation be revoked, the foundation’s remaining assets must be “applied to a similar purpose, at the board’s discretion.”
“The purpose for one of these entities is to separate assets from the original owner in order to preserve wealth,” says Werner Haslehner, a fellow at the Law Department of the London School of Economics. “One of the main reasons for someone to create one of these is to create something that will outlive their heirs.”
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