After Ivar Kreuger's death in March 1932, Ericsson faced a crisis. One of the problems concerned relations with the large American telephone company International Telegraph and Telephone Corporation (ITT).
In their pursuit of liquid funds, Kreuger & Toll, which had been the majority owners in Ericsson since 1930, had sold 410,000 series A and 200,000 series B shares in the company to the American competitor. The A series shares carried one vote, while the B series shares carried one thousandth of a vote at the Annual General Meeting. This meant that ITT controlled the voting rights in Ericsson, which Swedish law, however, did not allow foreign owners to do.
When ITT's management became aware of this fact and realized that Ivar Kreuger had misled them regarding the Swedish company's true financial position, the company demanded that Kreuger re-purchase the Ericsson shares, which Kreuger also promised to do and was once again forced to confirm in early March 1932, just before his last trip across the Atlantic.
For Ericsson as a company, it was paralyzing not to know who owned the company following Ivar Kreuger's death. A new Board of Directors should be elected to replace the Kreuger-dominated board, and a future strategy for the company needed to be formulated, particularly with respect to international competitors, including ITT.
The other major problem for Ericsson following the Kreuger crash was that the company was in desperate need of liquid funds. According to the year-end accounts for 1931, the company had debts to Swedish banks of SEK 40 million, while the overdraft facility of USD five million that Kreuger had negotiated for Ericsson in 1931 with various foreign banks was only worth about SEK 21 million.
All of the debts were short-term bank loans. In addition, there were a number of commitments relating to Ericsson's subsidiaries in France and Argentina, of which most also were short-term loans soon due for payment. Ivar Kreuger had systematically drained Ericsson of liquid funds. Ericsson had a claim of SEK 65 million on the estate of Kreuger & Toll, but these funds were not immediately available. A quick solution was needed.
Author: Ulf Olsson