Just a pretty face?

Source: www.nyteknik.se

Carl-Henric Svanberg: Sweden's most attractive export since Victoria Silvstedt. Though in terms of business acumen (or intelligence for that matter) I don't think there is much of a competition. Carl-Henric Svanberg was supposed to be the oil and energy giant BP's wildcard. 

The ropes of one of the world's largest companies were handed over to Svanberg from his predecessor, Mr Sutherland on the 1 January 2010. BP's board proudly announced its clever acquisition of one the most wanted business leaders. As a Swede, I was no less proud.

"Svanberg-era" at Ericsson

Mr Svanberg is mainly known for his achievements as CEO and president at Ericsson - the Swedish telecoms giant- which he, over the short time period of seven years, through profound changes and reinvention of corporate and business strategies, transformed from being an old, unfashionable and uncompetitive telecoms manufacturer into an industry leader. 

Source: www.svd.se

Ericsson appointed Svanberg at a particularly difficult time when the company was on its knees and growth was merely a dream. Svanberg turned dream into reality through strong leadership and clear vision.  Operational excellence, company culture, CSR and portfolio diversification were key pillars of the transformation. Over the first five years Ericsson experienced an unprecedented CAGR of 12%, followed by 18% for the entire "Svanberg-period". Svanberg was a force to be reckoned with. 

Press ♥ Svanberg = True

Furthermore, the press loved him. Not only did he know how to run the company as a superior industry player, but the man could communicate. Taking over from the previous public-shy CEO, Kurt Hellström, the difference was extreme. Svanberg loved the stage and he made sure to use it to charm everyone - from press to shareholders. 

Svanberg had it all; the contacts, the communication skills, the business acumen and the no-nonsense anti-bribery principles, all of which the dirty oil industry was craving. 

20 April 2010

Fulfilling a childhood dream type of career move, Carl-Henric was a happy camper. Until the 20 April 2010. Not the greatest of days for BP. Happy camper not so happy any more. 

Source: www.prwatch.org

As the catastrophic incident of the "oil spill" grew in proportion from one day to another, the world was tentatively anticipating BP's plan of action. To the surprise of Swedes worldwide, Tony Hayward - BP's CEO at the time of the accident - was alone in facing the press and the public. The Swedish reaction was a unanimous: "What happened to Svanberg?" Total confusion. 

Many of the core skills, which had made Svanberg a wildcard in the first place were nowhere to be seen. Where were his smooth speeches? Where were his impressive lobbying skills (I mean, Obama was not really a fan at the time...)? Where was his leadership? Apparently, whether it was Svanberg's decision or someone else's - the name of the game was now "Blame it all on Hayward". 

Source: www.borgarbarnet.worldpress.com

We care

When he finally did talk to the press, well let's just say no awards will be won for that speech. As a previously strong communicator, Svanberg's apology could have been better, language barrier or no language barrier. 

Source: www.cartoonstock.com

Overall, I have to say that I expected more from Svanberg. But maybe that is just it; there is only one way down from the top. Having left Ericsson at peak performance, he set the bar high, not just for his successor, but for himself as well. I am probably being harsh, and there is no doubt that the Swedish public has become intimidatingly comfortable with Svanberg's renowned performance track-record. 

After all, there is always room for improvement, and change is not derived from success, but from failure. Let's just hope Svanberg's next success is of the same scale as this fiasco. 

Source: www.voices.washingtonpost.com

One glimmer of hope could be BP's increased investments in alternative energy. If this sector leads the way into the future, BP will undoubtedly be well positioned to capitalise on the profits. So why not invest? The shares are still cheap, trading at about half of the price before the oil- spill back in May earlier this year. 

BP did not appoint Svanberg as their new Chairman for nothing, and even though I might be less impressed by how this scandal was handled, I'm in no doubt that the investment will pay off. BP will regain its strength on the market, and as far as energy is concerned, BP.L is one of the most sustainable options out there. 

For more information, please refer to the following sources Ericsson, Company announcement, E24. 

I will leave you with a less serious and more humorous interpretation of the accident that almost destroyed one of the world's largest companies. 

I love you. I buy you.

Source: www.economist.com

First things first, my apologies to those of you who were hoping to read about something other than China this week, but as it is a favourite topic of mine and last week's lead - China buys up the world - in The Economist, I really can't help myself from blogging about it. 

Source: www.eiu.com

Now, correct me if I'm wrong but isn't the common perception: China = Communism? Well, whilst in theory, the ownership of a business in a capitalist economy is irrelevant, in practice it is rather controversial. Therefore, when the #1 country that comes to mind when thinking of the word "red" or "communism", is now going on a global shopping spree, one starts to wonder. A capitalist in disguise? Hardly. A country with a big, fat trade surplus and a business-savy government? More likely. 

Source: www.economist.com

With such a high trade surplus ($27bn) and increasing pressure on the Chinese Yuan, it is no wonder that the Chinese government, often through the Sovereign Wealth Fund, as well as through the slightly more secretive SAFE (State Administration and Foreign Exchange) fund, is starting to buy up the world. I mean, why not kill two birds with one stone? Secure the wealth through M&A's of large and well-established MNE's, thus hedging against rich countries' devaluations and possible defaults, and at the same time increase their presence in the west, and acquire technology and know-how in the process. 

The Chinese can throw money at companies like no other country in current economic times. However, is overpaying a clever idea (just because you can, doesn't mean that you should)? Empirical evidence  highlights the caveats with this strategy. Let’s not forget what happened to Japan… 

Source: www.japaninc.com

Chinese firms currently own 6% of global investment in international business, a bleak comparison to the 50% that the UK held in 1914 and the US held in 1967. This further supports the argument that China will, no doubt become a superpower, but it will take a good couple of decades before it resembles a calibre as that of the US, key reasons being the culture and government structure. 

Source: www.leaderswedeserve.wordpress.com

FT's blogger Martin Wolf discusses the rise of China in one of his latest postings; Will China's rise be peaceful?. It is an interesting piece discussing how to, if at all, the west should facilitate for the rise of the east, including China. In my comment, I very much agree with Mr Wolf, that whilst western governments are solely focused on the political interests serving this acquisition spree and therefore being less welcoming, it would be foolish to write China off as a devious and naughty game player with a hidden agenda. 

Source: www.autoblog.com

As I am Swedish, I will take Volvo as an example. Forget IKEA, forget H&M, Volvo is as Swedish as it gets, at least for the Swedes themselves. I remember when I was little, my father drove a Volvo, many of my friends parents also drove Volvos'. Not only because it was Swedish, but it was considered a "proper" car and any self-respecting man drove one, at least during the 80's and 90's. That was the good days. Since Volvo Cars were acquired by Ford it has been a long way downhill. The recent takeover by the Chinese automotive holdings company; Geely, could realistically breathe some new life into this fossil of a brand. 

If you want further insight into what it is like being owned by the Chinese, another article in The Economist (same issue as the lead, which I referred to earlier), read - Being eaten by the dragon - in which anonymous CEOs of companies that have been "victims" of Chinese takeovers, give their view on what it is like to be owned by the Chinese. No names of either CEOs or companies are given. However, if you have been paying some attention to the M&A activity involving China as bidders in recent years, it isn't hard to figure out which the companies are...

Source: www.irishmoneytalk.com

What other options for investment is there? Ireland? Not really that attractive given its current "slight mishap"... (for an interesting read on this, go to Robert Peston's blog on the BBC website and read Ireland: The big uncertainties, and if you are interested in my opinion, have a look at my comment)

So, to conclude, China is no longer solely the target for western companies in terms of expansion strategy, their increasing interest in international and cross-border holdings in some of our dearest and most well-known western companies makes a strong case for the investor who believes in China as potential area for growth investments. The selection just doubled. A likely scenario is that the companies who don't choose to go to China on their own, may very well will be bought by the Chinese, who at some point in the future will move operations to the motherland, whether the company likes it or not. 

To put it in plain English; China is your Smorgasbord. 

The Great Firewall of China

Notoriously known for high Internet censorship, breaking through in China as a blogger, of any kind, is a challenge to say the least. The big boys like Facebook and Twitter have both encountered countless barriers and resistance in launching their products in the Chinese market.

Source: www.amitbhawani.com

A recent article in The Economist examines the situation further, highlighting that as it may be difficult to operate a service such as blogging, and microblogging in particular, the domestic players such are more likely to succeed than foreign. The blockage of Twitter in China encouraged homegrown version to appear on the market, even the Chinese government (including the Communist Party's own microblog The People's Daily) and former critics of microblogging have become frequent users.

Source:www.zdnet.com

However, the prime example of growth this area of communication is Weibo. A recent nationwide survey supports the popularity of Weibo, reporting that more than 45% under the age of 40 are frequent Weibo users and more than 94% said Weibo had changed their lives.

Source: www.starcomchinablog.com

With one of the world's largest population, you could easily see the appeal in this form of communication. Some people are even arguing that the Chinese are world leaders in microblogging, using it for everything possible. I personally think this is slightly optimistic. What can be argued however, is that the likes of Weibo could act as a platform for change, maybe even be a step towards "modernising" China's authoritarian regime. Though, as Internet analytics argue, if someone wanted to truly go beyond borders, microblogging wouldn't be the way as the government can track and actually shut them down whenever they want to. Now, they are simply playing ball.



Even if microblogs might not be a significant breakthrough in the history of Internet censorship, the Chinese open-minded attitude towards this form of communication, is. The relationship between the consumers and companies have significantly improved through the use of microblogs (please refer to figures above for further detail).

Is this sustainable. Maybe. If China continues to modernise itself, including opening the border to foreign goods and services in order to satisfy the demand of the Chinese consumer, then it is just a matter of time before lifestyle is another key aspect, which the Chinese wish to mirror. And that is when the real breakthrough (or breakdown even) in Internet censorship will really occur. Pessimists might think that this will take a while, however, personally I believe that at this rapid growth and development in a future superpower - this is a given, and will most definitely happen sooner rather than later.

So, in terms of an attractive investment, I don't think these specific companies (Weibo or Twitter for that matter) have enough exciting potential for a return of you investment, however, keep your eyes open because the company who is the first to innovate this further, and take it to another level, will be the golden ticket. Well, that is if you believe in the potential of the power of the Chinese consumer as much as I do.

LVMH ♥ Hermès...or maybe not.

If you can't beat them, buy them - and preferably without anyone noticing.

Source: www.snapme.ca

In a recent announcement it was clear that Bernard Arnault, the Chairman of one of the world's largest luxury groups; LVMH, has acquired a whopping 17.1% stake in the family owned luxury leather goods and scarf company, Hermès - without anyone actually realising it. The Dumas family still owns 73% of the company, split over 72 family members from two generations, however the 17.1% now owned by Mr Arnault represents 2/3 of the float.

Source: www.luxuo.com

It might come as a surprise to the management as to how this happened, but there is certainly no doubt as to why. The management of Hermès has politely asked Mr Arnault to withdraw from their company and  demands a sale of the shares. However, this is very unlikely to be happening as the LVMH Chairman, notorious for his sneaky and aggressive acquiring tactics, declares he has no interest in gaining a controlling stake in the company but nor does he look to sell his current stake.

The other high profile case that comes to mind is that of The Gucci Group, and the battle for the company, one that Mr Arnault lost to arch-rival luxury group PPR a decade ago. However, this situation is different as Hermès is not an vulnerable target, in contrary to The Gucci Group was back in 2000.

Source: www.huffingtonpost.com

Hermès was founded in 1837 by Thierry Hermès and went public in 1993, at €5 a share- the shares closed yesterday at €156.50. The impressive company's track record is as well known among long-term investors, as their super-exclusive $7,000 Kelly and Birkin bags are to fashionistas worldwide. 

Source: uk.finance.yahoo.com

Hermès shares have dropped 15 % over the past two weeks because of the likelihood that index-trackers will sell, given the stock’s free float now of only 10 per cent and the realisation by investors that LVMH bought its stake at €81 a share, through the use of derivatives built up in 2008. However, LVMH's shares have risen in price (see below chart for further reference). 

Source: uk.finance.yahoo.com

So question is, will this tactic work in favour of Mr Arnault or will Hermès just step up their game? As for now Hermès looks to be on the safe side with its limited partnership structure, furthermore, if LVMH does not back off the family owned luxury player, the introduction of poison pills is not unlikely- making the company look less attractive to the predator. 

Big isn't always beautiful. when looking at the track record of both companies, Hermès has enjoyed a compound annual growth rate in net profit of 14.7 per cent against 7.6 per cent for LVMH, and a far superior stock market performance - who is really the superior player? 

Quite frankly, it might not be Hermès who needs the mentor- is this a subtle way of acquiring key resources and capabilities, not only to build on the existing brand of LVMH, but rather necessary to sustain its competitive position in the luxury leather goods industry? 

Source: www.juicy.mashkulture.net

Maybe just slamming Madonna across their ads simply doesn't cut it in this cut-throat industry anymore? In terms of investment, before this announcement I would have given a strong BUY on Hermès (RMS.PA), and a HOLD on LVMH (MC.PA), and despite everything going on now I am pretty certain that Hermès will come out of all of this on top, possibly stronger in share price than before the announcement. Long-term though I would SELL MC.PA, just before this "possible take over"-hype is over. And to be honest, even if Mr Arnault did succeed in acquiring Hermès, this will not happen for a very long time and by then- who knows what will be in fashion?

For more information please visit: 

StyleElite

Reuters

Financial Times

The Economist