The Wallenbergs' New Blood
In the executive suites of Europe's financial powers, last week's surprise takeover bid by Sweden's S-E-Banken for the country's second-largest insurer caused a buzz. Founded in 1856, S-E-Banken is the original building block of the massive global business empire controlled by the much-talked-about but stubbornly mysterious Wallenberg family. The $2.2 billion merger catapults S-E-Banken into the big leagues of asset management and could have ripple effects far beyond Sweden's borders. What, wondered their rivals and colleagues, were the Wallenbergs up to?
The Wallenbergs' web of holding companies, businesses, and family-picked executives is a self-styled "Western keiretsu" that has long been known for farsighted strategy and deliberate moves. But the bank deal is one of several recent signs that the Wallenbergs are significantly stepping up the pace. In Sweden, the family is looking for fast-growth businesses to complement its world-leading industrial companies. Meanwhile, through their huge holding company, Investor, they plan to test the waters abroad, targeting areas such as health care and information technology.
"SLOW TO THE PUNCH." The result, the Wallenbergs hope, will be a historic corporate Goliath updated for the new millennium. From Electrolux vacuum cleaners to Zanussi dishwashers, from Scania trucks to Astra's top-selling ulcer pills, from Ericsson mobile phones to Saab fighter planes, Wallenberg company products already have a potent presence in global markets. They have helped make Sweden a far bigger player on the world stage than its 8.5 million population would seem to justify.
The next few years will be crucial for the family. Their companies face increasing rivalry from other global players and from upstarts in developing countries. The Wallenbergs will also come under heightened scrutiny from nonfamily investors such as the aggressive American fund manager Michael F. Price, who has taken a 7% stake in Investor. "They are entering an interesting phase," says a Swedish financier who knows the family well. "The pressure on their CEOs will increase; underperforming companies will be scrutinized as never before."
Some critics charge that in an age of savvy fund managers who excel at spotting businesses with high returns, the Wallenbergs' management style is obsolete. They have been slow to reallocate their portfolio into growth industries, and though Investor shares have shown a very respectable gain in recent years, much of that has come from a meteoric rise in Astra stock. "The products they develop are high-caliber, but they have not operated in growth businesses," says one major shareholder. "They have been slow to the punch."
But that judgment may be overly harsh. Supporters argue that the Wallenbergs' hands-on management style and the structure of their empire both create value. They point to the family's long track record, the synergies among its companies, and the Wallenbergs' willingness to bring in new blood to shake things up if necessary.
As a new generation begins to take control, change could come faster to the empire founded in the mid-19th century by A.O. Wallenberg, a sailor turned entrepreneur. Peter Wallenberg, at 71 the latest in a series of strong-minded patriarchs who have guided the group, is moving into the background. His 41-year-old son Jacob, and his nephew Marcus, also 41, are gradually assuming leadership.
And for the first time in decades, the Wallenbergs have named a nonfamily member as chairman of Investor: Percy Barnevik, who succeeded Peter Wallenberg in April. Barnevik made his international reputation running engineering dynamo ABB, one of the Wallenbergs' premier companies. He brings a global view and a restless, unsentimental approach to the hallowed organization. "When he is around, the steam pressure rises," says a key Wallenberg executive.
"VERY SMALL PLACE." Barnevik will turn up the heat on Wallenberg company managers and push them to invest in emerging markets. Some big restructurings may be in the offing, too. Barnevik may help find merger partners for longtime holdings, such as forest products giant STORA and roller-bearings powerhouse SKF. But investors say the Wallenbergs should time such moves carefully. "We want them to bring up the value of their holdings rationally," says Rob Friedman, senior vice-president of Price's Franklin Mutual Advisers in Short Hills, N.J.
Even before Barnevik took over, the family was modernizing its operations, which have their offices behind a modest, gingerbread facade on a cobblestoned square up a hill from Stockholm's harbor. They have started small venture-capital and leveraged buyout arms and have opened offices in Hong Kong, London, and New York to scout for opportunities. They now have just over 1% of their assets invested in Asia, with small stakes in about a dozen companies. "Sweden is a very small place," Peter Wallenberg said earlier this year. "There are a lot of opportunities in the world outside."
Jacob and Marcus are well trained to exploit them. Jacob has an MBA from the University of Pennsylvania's Wharton School and worked at J.P. Morgan & Co. in New York and Hambros Bank in London. Marcus got his undergraduate degree at Georgetown University and worked in marketing at Wallenberg paper giant STORA in Germany. The two share Peter's almost missionary zeal to continue the family tradition of presiding over a stable of companies.
Indeed, Barnevik, the younger Wallenbergs, and Investor President Claes Dahlback indicate that the family is likely to refine rather than scrap its traditional, long-term management approach. Barnevik says he has been studying Japan's keiretsu to see how the Wallenberg companies can reap more benefits from being part of a group. For example, he wants them to share their expertise in penetrating the Chinese market. "We have tremendous experience and knowledge among hundreds of thousands of employees," says Barnevik. "Strengthening the exploitation of that knowhow is a key concern I have."
As the royal family of Swedish business, the Wallenbergs are closely watched in everything they do. For example, S-E-Banken's offer for insurer Trygg-Hansa set off speculation about power plays within the empire. S-E-Banken has been floundering in the 1990s, and some observers think Barnevik may have made sure to put a protege of his own into the CEO slot at the newly merged company. That job will go to Trygg-Hansa's chief executive, Lars Thunell, who is known as a cost-cutter and dealmaker. Jacob will become chairman but remain closely involved in the finance company's operation.
It has become the conventional wisdom that Jacob will handle the financial businesses, with Marcus looking after industrial companies. But Jacob points out that Marcus already serves on S-E-Banken's board. Indeed, some observers think Jacob will assume more of his father's ambassadorial role, while Marcus will be more of an inside player, evaluating new deals and keeping a close watch on the family companies.
HEAVY BURDEN? Much as observers and investors love to tear them apart, the Wallenbergs don't flaunt the kind of ostentatious wealth that makes many international tycoons so unpopular. Most of their holdings are locked up in nonprofit foundations set up by the family decades ago and devoted to pursuits such as scientific research. In 1996, Peter Wallenberg reported an income of $2.98 million and a net worth of $22.2 million. The combined net worth of Marcus and Jacob was reported at less than $12 million. They live relatively quiet lives, enjoying sailing, grouse-hunting, and other popular Swedish pastimes.
Besides Marcus and Jacob, the only other Wallenberg involved in the family business is Jacob's younger brother, Peter, who manages Stockholm's sumptuous Grand Hotel, an Investor property. Other relatives may have opted out because the heritage can prove oppressive. Marcus' father, also named Marcus, killed himself in 1971. It is said that the worry that he was not living up to the family's expectations played a role.
Jacob seems to wear the burden lightly. He insists he doesn't feel more pressure to succeed than the next guy. But he knows the world is watching the Wallenbergs tinker with their formidable assets. With Percy Barnevik calling more of the shots and investors clamoring for results, the buzz around the family isn't about to go away.