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Share 2016-09-23 17:29 RATOS B 40.16 SEK

Esselte

From Swedish printing house to paper, international office supplies and much more

Otilia Söderberg’s father, Peder Herzog (1838–1920), was a bookbinder of Hessian-Jewish background. He first arrived in Stockholm in 1859. During a period of stay in St. Petersburg, he had been subjected to pogroms. In order to survive, he converted there to Christianity and changed his first name from Moses to Peder. He returned to Stockholm and started a bookbindery company in 1862.

What started as an insignificant operation, developed after a couple of decades into Scandinavia’s largest bookbindery, printing house and office supplies company. He was the first bookbinder in Sweden who installed steam-driven machines. Peder Herzog’s sons came to be involved in the company, which  took the name AB P. Herzog & Söner in 1906.

In 1918, the firm joined with Sveriges Litografiska Tryckerier (SLT), which had been formed in 1913 by the merger of 13 printing houses. The goal was to counteract the downward pressure on prices that the printing industry in Sweden had been experiencing.

Ratos first acquired SLT shares in 1947, although the Söderberg family had already owned shares in the company. Ragnar Söderberg was elected to the board in 1933. He became chairman in 1957, a position he held for the rest of his life.

During Ragnar’s time on the board, the company experienced strong growth and became a major player in the fields of printing, paper, packaging and office materials. One milestone was when the Esselte building on Vasagatan could be put into use in 1934. Built in the functionalism style by architect Ivar Tengbom, the office side faced Vasagatan and the industrial side (printing presses, bookbinders, stamp and cardboard mills) facing Västra Kyrkogata.

Paper manufacturing was conducted from 1944 to 1974 at Örebro Pappersbruk, where Ragnar Söderberg served for a majority of that time as chairman. During the 1960s, SLT was transformed from a rather unruly conglomerate of collateral subsidiaries, which partly competed in the same markets, to having logically constructed division structures.

The company changed its name in 1970 to Esselte and Sven Wallgren was hired as deputy managing director of Esselte in 1973, and was the company’s managing director from 1974-89. He served two additional years on the company’s board. The first contact with the Söderberg family after being named deputy managing director was with Barbro Montgomery, whom he met for dinner shortly before starting the job. About Esselte she said, ”that’s where Erik sits, he’s the nicest of us all”.

On his first day in his new job, September 1, 1974, Sven Wallgren ate lunch together with Esselte’s managing director Carl Mannerfelt and chairman of the board Ragnar Söderberg. At the annual meeting in 1974, Carl Mannerfelt was named chairman and he had both Erik Söderberg and his brother-in-law Henry Montgomery on his board. Erik was a board member from 1963-95, serving as chairman the last five years. Henry sat on the board from 1972-90, with a break from 1976-80, when he was the undersecretary for Minister of Justice Sven Romanus.

Esselte received a large capital infusion through the sale of Örebro Pappersbruk in 1974, setting off a period of expansion for the company. Several large office product companies were acquired. Alongside of this development, a couple of business areas were sold off, including consumer packaging, corrugated cardboard, printing and publishing. Esselte Video entered the Swedish movie theatre market in 1986, opening Filmstaden in Gothenburg.

By 1986, Esselte was Sweden’s ninth largest industrial company, measured in terms of employees. At the time, the company had 18,000 employees, 12,000 of those overseas. During Sven Wallgren’s time, over 200 companies were acquired and the share value rose 42 times. Ratos received a significant economic boost from its Esselte shares.

During the 1970s and 1980s, Esselte was described as an ownerless company, in other words, a company without a dominant owner. Sven Wallgren attempted, without success, to interest both Fredrik Lundberg and Sven Söderberg to go in as principal owners in Esselte. What instead happened was that finance company Mobilia became a major owner of Esselte by the mid-1980s. Backing up that company was the infamous financier Magnus Lundholm. The first Sven Wallgren heard of the news that Mobilia had acquired shares in Esselte was when an acquaintance called on the telephone and informed him that: ”You have lice in your fur”. Mobilia’s involvement resulted in quite a few problems for Sven Wallgren and Esselte.

In January 1990, Mobilia announced its intention to submit a bid for all of Esselte’s shares. Ratos declared itself willing to participate in the transaction by agreeing to remain as owner for a limited period of time. Esselte’s board hired two outside experts to evaluate the bid. Both advised against it, upon which the board advised shareholders against accepting the bid. As a result the acquisition was not completed.

Mobilia was deeply affected by the financial crisis and declared bankruptcy in December 1990. Prior to that, Nordbanken and Gota Bank had taken over the Esselte shares that Mobilia had pledged as security for its loans. Together with these banks, Ratos was able to present a proposal for a new board at the annual general meeting in 1991, which resulted in stability in Esselte’s ownership circle and on the board. Ratos would remain as a major owner of Esselte for over another decade.

Its holdings were sold in two phases. The Meto shares were sold first with an exit gain of SEK 217 million (IRR 391%). The final shareholding was sold in 2002 to an American private equity fund, J.W. Childs, with an exit gain of SEK 95 million (IRR 14%).