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The latest victim of Enronitis may be ABB, the Zurich-based engineering giant whose founder and former CEO Percy Barnevik was once considered to be the Jack Welch of Europe. Beset by several quarters of disappointing performance, problems seem to be piling up at ABB amid investor fears of unrevealed woes at a company that had prided itself on using U.S.-style multinationalism and savage cost-cutting to become a model European business.
Lately, however, worries about potential asbestos liabilities have mushroomed. And on Feb. 13, an apparent feud at the top levels spilled into the public even as ABB announced an additional $1.4 billion in write-downs after taking a charge of nearly $500 million just a few months ago.
The stock sank 7% after ABB's board of directors announced that it would press Barnevik to pay back some of the roughly $80 million in pension benefits he had received after his resignation as CEO in 1996 (he stayed on as chairman until 2001). "Approval procedures for these benefits were unsatisfactory," the board said in a statement. ABB is also pushing Barnevik's successor, Goran Lindahl, who stepped down as CEO in 2000, to pay back benefits.
NO HINTS. Through a spokesman, Barnevik, 60, insisted that his salary and pension during his 17 years as CEO were based on agreements with the company and its results. Lindhal couldn't be reached for comment. But for a company to hound its founder and a former CEO in this open way is extraordinary in European business. Many professional investors say they're concerned that the signals coming out of ABB raise questions about what else may be wrong at the company.
No one is alleging that anything illegal has occurred at ABB. No hint of any accounting woes has surfaced, and the company says no other problems are lurking. But investors sensitized in recent months by the Enron debacle are concerned. The former high-flying stock has already taken a beating since last summer, falling from a 52-week high of nearly $19 a share on the New York Stock Exchange-traded American depositary receipts, to just under $8 on Feb. 13.
Barnevik personally created ABB through a megamerger of Asea, once controlled by Sweden's Wallenberg family, and Swiss/German Brown Boveri in 1988. He resigned as ABB's chairman in the autumn of 2001 to take the fall for the company's poor performance. But the problems have persisted. For 2001, ABB lost $691 million on revenues of $24 billion.
BURNED BY ASBESTOS. Then came the latest shocker. On Feb. 13, the company announced huge charges of $1.4 billion -- including a doubling of provisions for potentially ruinous asbestos liabilities, to $940 million. Most of the liabilities arise from activities at the Combustion Engineering subsidiary that Barnevik purchased with fanfare about a decade ago.
Knowledgeable observers speculate that Barnevik's nasty treatment could arise from the disappointment of ABB board member Martin Ebner, a maverick Swiss investor who has built up a 10% stake in the company. Ebner couldn't be reached for comment, but he has lost millions on his ABB investment.
ABB's founder has also lost some of his luster in the universe of the Wallenberg family for whom he has long served as a key adviser and executive. Barnevik recently announced that in addition to leaving ABB, he was also stepping down as chairman of Investor, the Wallenberg family holding company, which has large stakes in or controls some of Europe's largest blue-chip companies, including cell-phone maker Ericsson, drugmaker Astra-Zeneca, and industrial giant Electrolux among others.
THREATENED LEGACY. Barnevik, who took up his role at Investor in 1997, says he had never intended to stay more than five years, but Barnevik may have worn out his welcome with the Wallenbergs. His efforts in the battle to prevent truckmaker Scania, then a Wallenberg company, from being taken over by Swedish rival Volvo in 1999 were sharply criticized. And the family lost much of its control of ABB during Barnevik's tenure there. For now, the Wallenbergs aren't talking.
Still, the current problems at ABB pose the greatest threat to his legacy. Scores of European publications have in the past few years published favorable profiles of the aggressive executive who had used ABB to create a European powerhouse where all employees were required to conduct business in English and all dealings were transacted in U.S. dollars.
Now the questions are: Will Barnevik's reputation will emerge untarnished, and have all of ABB's problems been aired?
Reed is a London-based correspondent for BusinessWeek Edited by Beth Belton
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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