Case Studies
STREAMLINING
Improving performance of individual assets
The set of challenges that exists when restructuring of state-owned commercial assets are rather different in comparison to what is faced by privately owned enterprises in a similar situation. Unlike private enterprises with a focus on profit maximisation, reforming state assets is somewhat more complex, as they risk having multiple and often conflicting objectives as well as facing significant impediments such as excessive political interference, and a lack of transparency, not seldom leading to rather unwieldy structures.
Acting as a professional owner of state assets often starts with focusing on the core business, where each company is adding the most value. Assets and activities accumulated over the years, with no relation to the main business only detract management attention from their main purpose. Furthermore, deregulation and competition issues in many sectors of former state monopolies such as telecom, rail and postal services requires a more neutral ownership of certain support activities. Outsourcing creates efficiencies in the supply of related services, since a different ownership means that the customer base of a subsidiary company could be broadened and the cost of such services be reduced.
As an example, the 3-year restructuring of the Swedish government portfolio led to substantial increase in value, outperforming the local stock-market for six quarters in a row.
- Paper and pulp company
- National Railway Operator
- Electric Utility
- Telecom Operator
- Post Office and Mail Service
AssiDomän was one of Europe’s largest publicly traded paper and packaging groups and one of the world’s largest owners of forest assets. At the end of 1998 the company was loss-making suffering from a lack of strategic focus, insufficient market shares, having made substantial investments and acquisitions without receiving acceptable returns. Furthermore, it had operational problems and had repeatedly failed to meet earnings expectations, causing a falling share price, and low relative valuation. With the new government ownership strategy a professional approach implemented a series of change including nominating a new board shortly followed by hiring a new CEO with the objective to develop and accomplish new strategy materializing the considerable value potential and hidden values in the assets as well achieve an operational turn-around. The restructuring work resulted in the de-merger of the forestry assets from the industrial operations and divesting or joint-venturing parts of the industrial operations to industrial, as well as financial buyers. The company did also return significant capital to shareholders and ended up as one of the best performing companies on the stock market within a year.
The transformation of the Swedish Rail Services into one of the more profitable rail operators in Europe was made possible by focusing on the core functions. De-merging the core business into a passenger and a cargo business, each with separate management reporting directly to the Owner, placing all management attention on a single business objective instead of overseeing a conglomerate.
All of the residual business that the Swedish Rail Services had accumulated over the years was put in to a separate holding company. The assets and different operations in this residual holding company included one of the largest real estate portfolios in the country, IT consulting, restaurants, casinos, ferry lines, bus services, hotels, cleaning services, rolling stock maintenance and other support services. These assets were concentrated under a separate management with the sole purpose of maximising proceeds from these assets, after a careful analysis of the portfolio and handle the restructuring, divesting to independent owners, neutral to all competitors in the sector.
Residual holding company web site
Vattenfall, the Swedish electricity generator, had outgrown its home market and consequently ventured abroad without a coherent strategy or acceptable return on its investments. The Company had been left alone to use its cash and acquired assets in such disparate geographic locations such as South America, South East Asia and Southern Europe. During the reform years Vattenfall was given an entirely new strategy, which outlined a strict streamlining of its operations and a focus on Northern Europe. Having sold-off its non core assets it turned its eyes to something closer to home. The consolidation game following the reunification of Germany gave rise to the opportunity to acquire several major city generators in Germany and Poland, as well as the former East German state electricity company. The new board and management rose to the opportunity and managed to acquire a number of strategic assets within two years, propelling Vattenfall to become the third largest electricity generator in Germany and a focused player in the European power industry.
In the late 1990’s regional consolidation was all the rage. After a failed merger attempt with the Norwegian incumbent the new government ownership strategy prioritised a listing of the telecom operator. An IPO would not only achieve a market valuation of the company and thereby avoid public debate about valuations in a potential merger, but also obtain an acquisition currency.
The company was prepared for the IPO by streamlining most of its non-core assets, which was offloaded into a separate holding company charged with restructuring and divesting these assets at best possible price.
Soon after the IPO, it was possible to initiate merger discussions with the leading Finnish mobile operator, Sonera.
The combination of a liberalised market, universal service obligation and a high operating leverage was a formidable challenge for the Swedish Post at the end of the 1990’s. An overall decline in mail volumes and over 80 different postal operators working in Sweden had a very strong and direct impact on the operating performance.
The way out was a strong focus on the core service of mail and smaller parcels, divesting of all non-core activities assets including financial services and logistics. Furthermore, post office services was divested and outsourced to retailers and service stations able to offer a better and closer service offering than through the wholly owned network.
Later on it was also possible to improve the operational scale and form merger with the Post in Denmark creating a larger group with sales exceeding € 4 billion.
