Switch to pure business development

When Ratos was listed on the exchange in 1954, it was as a mixed investment company. Ratos was an active owner of a number of operating subsidiaries. The most important of those, other than Söderberg & Haak which formed its foundation, were Gryts Bruk, Lasco and Smedjebackens Valsverk. Ratos also held a significant stock portfolio of Asea, Bulten, Gränges, Holmen and Sveriges Litografiska Tryckerier (SLT; later Esselte).

During the last months of Ragnar Söderberg’s life in 1974, a shockwave rippled through the global economy with serious consequences for many countries, industries and companies. The triggering factor was the significant increase in oil prices during 1973-74. His sons Johan, Erik and Sven took over during a time when the industrialised world was going into a deep and lasting economic downturn. At the same time, Sweden’s staple industries were experiencing increasingly stiff international competition.

Ratos held large positions in the harshly impacted steel sector. It would hardly have been surprising if Ratos and the Söderberg family had lost their leading position in Swedish industry during the  1970s crisis. However, Ratos demonstrated during the 1970s and 1980s keen business acumen by emerging from all of its involvements with the steel sector, often on good financial terms.

Under Sven Söderberg’s leadership, the company’s involvement in steel was phased out and by 1991, Ratos had left the steel industry entirely. Once again Ratos and the Söderbergs demonstrated their ability to make good business transactions at the right time. What remained was a large real estate portfolio. These sales also enabled Ratos to invest in what would eventually become Scandic Hotels.

In conjunction with these changes a “New Ratos” was created, with an entirely different business structure. During this time there were three brothers in management. Johan, who was somewhat of a researcher, Erik the extroverted businessman and Sven, who was considered to be most like his father, “always well-read, driven, unafraid and a man of honour”. In 1985, a new strategy was adopted where, in addition to a stock portfolio, ownership would be concentrated on a few wholly owned companies, such as the heating, ventilation and sanitation wholesaler Dahl, real estate company Stancia, the hotel chain Scandic Hotels and the transportation group Inter Forward. All of these companies were large, expansive and operating internationally.

The financial crisis hit in the early 1990s, affecting Ratos, whose market value shrank dramatically.

Since its inception in 1947, Ratos had been a mixed investment company, with both operating subsidiaries and listed shares. In November 1995, a new strategy was adopted where Ratos shifted from being a mixed to a pure investment company, entirely without wholly owned subsidiaries. The reason for this was the negative attitudes towards conglomerates among investors, where synergies between subsidiaries failed to materialise and mixed investment companies were considered difficult to value. The new strategy involved a greater spread of risk and a more aggressive dividend policy.

However, along with the pure investment company came problems with the NAV discount and redemption programs. The latter ran the risk of gradually shrinking Ratos, making Sven increasingly sceptical.

The night of 27 May 1998 was a dramatic one. Sven Söderberg resigned as chairman, but remained as a board member. Olof Stenhammar, who had been elected to Ratos’s board in 1994,  recounts what happened next:

Just before midnight we adjourned. Göran Grosskopf had accepted the position as the company’s new chairman. Göran was also chairman of Tetra Pak and was going to consult with the Rausing family during the night. We were going to meet again at 7:00 a.m. the next morning in order to make a formal decision and to issue a press release. That morning there were unusually long traffic jams into the city and I arrived approximately ten minutes late to the meeting. As I apologised and stepped through the door into the boardroom, I felt an unusual atmosphere. It was deathly quiet. Everyone was looking at me. Suddenly someone cleared their throat, I don’t recall who, looked at me and said very softly: “You’ll have to take it! You’ll have to be chairman!”. It turned out that during the night Rausing had withheld his consent for Göran Grosskopf to take command at Ratos. During those ten minutes in my absence, they had reached this decision that would impact my future quite a lot! I made a feeble attempt to decline. This was nothing that I had desired or planned. I didn’t want to, but following a brief discussion – we were going to issue a press release before 8am – I accepted. If you are a member of a board, then of course you have a certain responsibility in a difficult situation. Everyone on the board promised to help and assist me in the work. That is how I became the first chairman of Ratos that was not named Söderberg. But at that moment I actually felt like the black sheep.

Olof Stenhammar now had the task of finding a new managing director.

The most important task for Olof Stenhammar as the new chairman of the board in June 1998 was to initiate the recruitment process for a new managing director. The basis for the search was that Ratos would continue to operate with the same strategy as before.

The entire recruitment process took a turn, however, after Erik Söderberg called up Olof Stenhammar. Erik Söderberg suggested Arne Karlsson at the investment firm Atle, as a name that had not come up in previous discussions. Arne was contacted by a recruiting company but appeared only moderately interested. For one, he was very satisfied at Atle, nor did he think that Ratos would be interesting for him, since he did not believe in that kind of investment company.

Arne Karlsson did agree to come before Ratos’s recruitment committee after vacation to present himself.  Stenhammar has described that meeting like this: A somewhat hesitant Arne appeared before our recruitment committee and made an almost two-hour long presentation about his “black box” strategy, about why investment company shares are discounted and about private equity, PE, as an ownership format. I did not admit it at the time, but I myself had no idea what was meant by PE. I immediately felt strongly that here was someone who could bring Ratos to new heights.

Arne Karlsson made it clear at the meeting that he was only interested in working with the strategy that he had just presented. The Ratos board now faced not just the selection of a new managing director, but also the question of whether to switch directions entirely for the company. Following many discussions within the board, Ratos announced on 15 September 1998 that Arne Karlsson would be coming aboard as the new managing director at the end of the year.