Sneak Attack On The Wallenbergs

Volvo has bought a chunk of truckmaker Scania--and may sell its cars to Ford. A powerful clan is not pleased

When Leif Johansson left the top job at Electrolux, a company controlled by Sweden's influential Wallenberg family, to run car-and-truck maker Volvo in late 1996, there was speculation that he might be a Trojan horse. After all, both he and his father, Lennart, had had long careers as top executives in the Wallenberg empire. With Johansson at Volvo, the theory went, the Wallenbergs could get their hands on a longstanding rival.

Instead, Johansson, 47, is showing that he is very much his own man. He is attempting a radical transformation of Volvo, including selling off the beloved car division. On Jan. 27, sources close to Ford Motor Co. said the Detroit carmaker would offer to buy Volvo's car operations for $6 billion, beating out Volkswagen and Fiat. In another key move, Johansson is making unfriendly advances on truckmaker Scania, a Wallenberg company.

"UNFORTUNATE." Using the money he gets from selling the car business, Johansson plans to invest in trucks--a better proposition than Volvo's marginal cars. Taking on his old colleagues in the Wallenberg camp, he has rounded up nearly 13% of Scania from Swedish institutions. The news was treated with shock and dismay at Investor, the Wallenberg holding company. Investor does not like being on the receiving end of such power plays--especially when they come from someone considered family. Claes Dahlback, Investor's CEO, admitted Johansson's move had taken him by surprise. Dahlback was also less than enthusiastic, saying: "It is unfortunate that, through this action, Volvo has complicated discussions that were going on."

Even though many Swedes consider Volvo cars the country's prize industrial property, Johansson worries that Volvo, which sold 400,000 autos last year, will never be more than a bit player in the consolidating car industry. Volvo is likely to report operating income of $1 billion in 1998, a 5% decline, according to John Lawson, an analyst at Salomon Smith Barney in London.

Johansson is betting that selling off Volvo's car business, which has profit margins of just 3.5%, compared with an estimated 8% for trucks in Europe, will earn rich rewards in the stock market. Indeed, word in early January that Johansson had hired J.P. Morgan & Co. to explore his options helped boost Volvo's stock price by about 25%.

Beyond that, Johansson must convince investors and other interested parties, such as the unions and politicians, that he has a worthwhile growth strategy in mind. That is where Scania comes in. Scania and Volvo are the Rolls Royces of heavy trucks in Europe. By buying into Scania, Johansson has conjured up the vision of a Swedish trucking powerhouse, with 30% of the European market. "What is good for Scania and Volvo is good for Sweden," Industry & Commerce Minister Bjorn Rosengren said approvingly on Jan. 15.

Johansson has certainly caught Investor off balance. Investor was embarrassed that institutional shareholders including insurer Skandia and two government pension funds were willing to hand over their shares. Johansson was exploiting frustration with Scania's shares, which have languished since Investor brought them to market in 1996 at $23. The shares traded at about $19 in early January before Volvo's play sent them up around $30. "We want to support Volvo's chances" of creating a trucking giant, says Bo Ingmarsson, Skandia's chief financial officer.

Johansson's move ignited a wave of press criticism of Investor Chairman Percy Barnevik for neglecting shareholders' interests. Although Investor controls Scania, with 45% of the voting stock, its executives realize that they can't be seen to be pursuing their own interests at the expense of shareholders. "They won't survive if their shareholders aren't happy," says an investment banker in Stockholm.

NERDY BIKER. That could be just what Johansson is hoping for. Associates describe the executive shaking up Sweden as a man who is well-liked by almost everyone. A native of Gothenburg, Volvo's home city, he is married to his high school sweetheart, and they have five children. But he has a colorful, independent streak beneath his nerdy appearance. He is fond of riding motorcycles: His first big job with the Wallenbergs was running the motorcycle unit at Electrolux in 1979. He also likes getting under the hood of his Jaguar classic.

Although Johansson caught some flak for Electrolux' lackluster results during his three-year tenure as CEO there, he is credited with laying some of the groundwork for the company's recent improvement. Now, Johansson may find himself facing a firestorm of protest. The sale of the car business could mean a sharp reduction of work for Swedish labor and suppliers. Although it is being promoted as a "Swedish solution," a Volvo-Scania truck merger might also have brutal consequences for Swedish jobs. Scania has 10,000 employees in Sweden, and Volvo 16,000.

There are also questions about the merits of linking Volvo's truck business with Scania's. A merger would do little to extend the two brands' product range or geographical reach, says Salomon's Lawson. Their combined share of nearly one-third of the heavy-truck market might draw fire from European Union regulators. There's also concern that the intense local rivalry that has sent the two truckmakers barreling to the front ranks of Europe's market may be lost if they join forces.

But if Johansson remakes Volvo, he is likely to be remembered as a man who shook up Sweden's cozy corporate club. Two cardinal rules of Swedish business are that deals should be done in private and that it does not pay to take on the Wallenbergs. Johansson is breaking both. Will he get away with it?

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