April–June 2002 was devoted to writing the prospectus, planning opening moves and analyzing scenarios. The final prospectus was officially presented on July 19. The bank advisers proposed an issue price of SEK 5.50 but the board went down to SEK 3.80.
While the issue was being prepared, both the share price and demand dropped. Treschow says: “We [Treschow, Hellström and Fornell] turned ourselves into a roadshow. I don’t know how many meetings we held. We were out selling the issue all summer. There was one moment when the listed price dropped below the issue price of SEK 3.80 so that the options would have been worth nothing. Then the price stabilized at SEK 5–6.”
“Nobody could feel confident until the last day,” Treschow says. “In fact, the issue was oversubscribed. But the financial situation changed during the process. If we had needed a further three-four weeks to pull it off, the bankers say we might not have succeeded.”
But failure was not an option, he adds. “You have to focus. In a situation like this you dare not even think about failure. Kurt and Sten felt the way they did because their history in Ericsson went back so far, mine was probably due to my knowing that there was no alternative.”
Treschow, Hellström and Fornell made a lot of jokes about themselves. “We could see the funny side of being traveling actors with three distinct roles. And we kept reminding each other that even if it was our 25th meeting, it was the first for the people we were talking to. The important thing every time was to create energy.
“It was teamwork. Each of us went through bad patches and then the other two had to bear the load. It was particularly tough for Kurt, and for Sten as well; they both had two fronts – they had to run the company at the same time.”
The press conferences during the issue process were special in themselves. There were often analyses made, criticisms expressed, that were totally irrelevant and only created unnecessary problems.
Treschow says: “Different groups of investors often had different opinions or preferences. It was a matter of showing who you were and making the question ‘Do you trust us?’ a personal one. We were treated well but with skepticism. The people we were meeting had already lost lots of money as the share price fell. Obviously they were worried that they might be throwing good money after bad.”
FOUR ARGUMENTS
There has been a great deal of discussion about Ericsson’s rights issue. Treschow says the main arguments that he, Hellström and Fornell pushed during their meetings were:
1. Ericsson was doing what it needed to do to adapt to a less buoyant market. “We had a lot of credibility there. The cuts were in full swing.”
2. Fundamentally the sector was sound. “The demand for communication services had not disappeared. It was going to increase.”
3. Sooner or later, the operators would need to start investing again. They had spent too much on 3G licences and drained their finances in an acquisition spree. And the analyst corps was demanding that they focus more on cash flow.
4. After the cuts, Ericsson would be better equipped than its competitors.
“Our strongest argument was what Ericsson was hard at work pursuing. And it was there we needed the money,” Treschow adds.
"NATIONAL SWEDISH HEIRLOOM"
The operators, on the other hand, were caught between a rock and a hard place. Treschow again: “To begin with, the finance market had urged them to invest in 3G licenses; now it was forcing them to demonstrate savings. Our strategy was to be as frank as possible, to describe things as they were. The people listening to us were not born yesterday. But the majority believed what we said. It turned out that on the whole we were right. But we were relatively cautious. You have to be careful with your promises and warn about the risks.”
The main Swedish owners were far and away the most positive. “There was a feeling that Ericsson was a national Swedish heirloom that we had to save. We had continuous contact with [labor minister] Hans Karlsson and [prime minister] Göran Persson. Something typically Swedish found expression here: when there is a real crisis, we stick together.”
The subscription period was from August 15 until September 3, 2002. On the last day it was clear that Hellström had led Ericsson through its worst crisis: “That’s when I told Michael Treschow that now I was thinking of retiring,” he says.
Author: Svenolof Karlsson & Anders Lugn