Scania and the benefits of independence
Volkswagen’s bid for heavy vehicle manufacturer Scania has divided Swedish institutional investors, with the division no more apparent than among its buffer funds.
Set for wholesale overhaul in the wake of 2012’s Buffer Fund Inquiry – after a recommendation to reduce the number of vehicles from five to three was accepted by the government and main opposition social democrat party in early 2014 – the four main buffer funds, AP1 to AP4, came to markedly different conclusions when scrutinising the SEK200 (€22.30) a share offer for Scania.
Whereas AP1, according to local media reports, chose to sell its stake in the local firm and sidestepped any potential decision, AP4 opposed Vokswagen’s bid. Upon rejecting the offer in April, the fund said it fully accepted that the move could impact share value in the short term.
It added: “Our belief is, however, that the Swedish senior citizens who are the main principals of AP4 in the long term will benefit if Scania remains as an independent listed company.”
Fellow funds AP2 and AP3 either saw the bid as attractive and accepted, or were unwilling to continue holding out against an all-powerful Volkswagen, which before the bid already controlled more than 80% of voting rights within the rival.
Peter Lundqvist, AP3’s head of corporate governance, said the last couple of years as a minority shareholder in Scania had not been easy and cited a 2013 reduction in dividend payments, as well as the VW-led abolition of Scania’s nominations committee.
Unwillingness on the part of the German company to engage was also a cause for concern. “When you invite your partner to dance, it’s difficult when she refuses to step out on the dance floor,” Lundqvist said.
AP4, meanwhile, resolutely stood by its decision to not sell up, and pointed to the firm’s independent recommendation that the SEK200 bid did not do it justice.
Mats Andersson, chief executive at AP4, also said the Swedish minority shareholder protections would serve it in good stead, and that it would be “more than willing” to employ them against what some could argue were VW’s aggressive advances.
“If Scania were to continue as an independently listed company, we will continue to fight,” he told IPE in April.
On the day in mid-May when VW’s offer was finally accepted, Andersson simply said it was “unfortunate” no more investors had stood by Scania’s independent committee.
“Instead of facing an extended compulsory purchase process, we have decided to hand in our shares,” he added.
With the changes due to the system, which include the introduction of a reference portfolio and the shift to a prudent person principle that could see a single trustee in charge of investment decisions, it seems unlikely such a division will repeat itself.
A snapshot of each fund’s success is very quickly possible, as each of the four vehicles was offered equal seed capital of SEK134bn in 2001. Since then, AP1 has grown to SEK252bn, AP3 to SEK258bn, AP4 to SEK260bn and AP2 to SEK264bn – meaning the latter has been most successful in growing capital.
The future of the funds is uncertain. They could be subject to identical benchmarks, likely leading to very similar outcomes if independent investment decisions are restrained by the fact one trustee oversees the system. Another option would be two funds chasing the same target and one investing in illiquid assets, thereby resulting in results that cannot be compared with those excluded from real estate, infrastructure and private equity.
There is understandably not an easy answer to the question of which funds are to survive, but, as the lengthy battle for one of Sweden’s largest companies draws to a close, the differences of opinion among the funds at least demonstrates the benefits of independence.