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Can the Wallenbergs Shift Gears? (int'l edition)
The Scania sale may show the way to a more powerful portfolio

It may not have been the deal he wanted. But Marcus Wallenberg, chief executive of Investor, came out looking like a winner from the Aug. 6 sale of his family holding company's 28.5% share of Swedish truckmaker Scania to Volvo for $2.2 billion. After refusing to sell the company earlier this year, Investor eventually persuaded Volvo to pay a stiff $38.80 per share, a 29% premium over the closing price on Aug. 5. The deal values Scania at a hefty $7.5 billion. ''Investor won the blinking match; they held their nerve and got a big price,'' says John K. Lawson, an automotive analyst at Salomon Smith Barney in London.

It's likely to be the first of many deals for Marcus Wallenberg, who became Investor's CEO in April. Once the Volvo transaction is completed, he will have $2 billion in cash and a chance to revitalize Investor, which has lost momentum. The Wallenbergs are Sweden's leading industrialists, but some of their key companies such as telecom giant Ericsson have been struggling. Investor is also under fire for having too much of its portfolio in old-line companies such as ball-bearing maker SKF and forest products giant Stora Enso Oyj. The holding company's stock is trading at about a 30% discount to its underlying portfolio.

HANGING TOUGH. Wallenberg is under pressure to sell off the laggards and put the money into leveraged buyouts, venture capital, and investments in the U.S. and Asia. Investor may also add to its investments in promising companies such as pharmaceuticals giant AstraZeneca. ''It depends on the opportunities that come along,'' says Wallenberg. ''But these are interesting times.''

By hanging tough with Volvo, Wallenberg extracted a price more than double Scania's low last year, before Volvo began accumulating the stock in January. The Wallenbergs also realized their ambition of gaining influence over Volvo, a traditional rival in Swedish industry. Investor is likely to become the top shareholder in Volvo with about 13% of the voting stock and a board seat. It will consider Volvo one of its core companies. Still, the deal is far from a complete triumph: Investor has allowed Volvo chief executive Leif Johansson, who essentially launched a hostile raid, to win control over a Wallenberg company.

Marcus, 42, and his cousin Jacob, 43, represent a younger generation of Wallenbergs, who realize that their influence depends on Investor's performance. Although Investor shares piled up annual gains in the 20% range for the last 20 years, a flat performance last year left the Wallenbergs vulnerable to the raid on Scania. Despite leaping 5% on the Scania news, Investor stock has managed a total return of only 10% this year, below the 16% average for the Swedish index.

So the Wallenbergs will remain under pressure to do more deals. Stockholders in Investor would like them to find an honorable way to exit from SKF. Electrolux and Scandinavian Airlines System are only marginally profitable. These businesses ''take up too much management time'' relative to the payoff, says David E. Marcus, director of European investments at Franklin Mutual Advisers. The U.S. fund manager is Investor's largest outside shareholder, with about 8%. ''I am hoping [the Scania sale] is the first decision of many,'' he adds.

VOLVO'S VALUE. Marcus and other analysts are still disappointed that Investor is putting so much money back into Volvo stock. Volvo's upside may be limited, analysts say, because truck manufacturing is a mature industry. But the Wallenbergs are believers in the fast consolidating truck industry. Volvo itself has been courted by Fiat and DaimlerChrysler and could sell out at the right price.

Another Wallenberg company to watch is Ericsson, which accounts for about 16% of its portfolio. It has fallen behind Finnish rival Nokia in the hot field of mobile handsets. If Lars Ramqvist, who has retaken the reins of the company, cannot turn things around, then Ericsson, too, could become takeover bait. Marcus Wallenberg is not going to be pushed into rash moves. But just about everything in his empire is now on the table.

By Stanley Reed in London, with Ariane Sains in Stockholm

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