Untying the knots

Waldemar Borgquist, chairman of the board 1933-1953.

After the Kreuger crash, an investigative committee worked out a solution to the complicated issue of ownership within Ericsson. The main points of the plan were as follows. International Telegraph and Telephone Corporation (ITT) would purchase its Ericsson shares with payment to consist of the Kreuger & Toll estate’s claim of USD 11 million on the company being written off. Of the shares held by the American company, series A shares would be retained corresponding to one third of the voting rights in Ericsson, while the remaining A series shares would be transferred to Stockholms Enskilda Bank, Handelsbanken or a company close to one of these banks in exchange for series B shares with fewer voting rights.

In this manner, the ties between the Kreuger group and ITT could be loosened and the problem of foreign ownership of Ericsson solved. Through its large purchases of Ericsson shares from Ivar Kreuger, ITT had gained control over the company that it could not exercise because of Swedish law.

A prerequisite for the investigative committee’s solution was that the Swedish government should approve a proposal to increase the limit on foreign-held voting rights in the company from 20 to 35 percent, which occurred in June 1933. Another important component in the solution was that Handelsbanken, which was the largest Swedish owner, formed a syndicate, together with Stockholms Enskilda Bank and ITT, which created an effective shareholder majority in Ericsson and gave the company a clear ownership structure. The company could thus be retained as an independent Swedish company, despite the fact that ITT was the largest single owner.

In solving Ericsson’s ownership problems, Marcus Wallenberg was given the task of handling many of the preparations, particularly with regard to negotiations with the American owners ITT. Although his father, Marcus Wallenberg Sr., and his brother Jacob were active in the initial stages, it was Marcus Wallenberg who took over in 1933.

The Wallenberg sphere’s influence was reflected in the election of Marcus Wallenberg to the new Ericsson board of directors, of which he was appointed vice chairman. The chairman was Waldemar Borgquist, the general director of National Water Works and a person who had no ties to any special groups in Swedish industry, while Handelsbanken was represented by industrial expert Wiking Johnsson.

Within the new board of directors, a finance sub-committee was appointed under the leadership of Marcus Wallenberg. This committee would not only handle financial matter, but came to act virtually as a board within the board, discussing all current issues, including products and production. ITT’s two representatives on the board, one of whom was the company’s president Sosthenes Behn, remained very passive, meaning that the finance committee’s handling of various matters was decisive for the board’s decisions.

Ericsson’s large debts to various banks were also a result of the Kreuger crash. In July 1932, after negotiations led by Marcus Wallenberg, an agreement was reached with the three banks in question to extend credit until the end of 1933. In addition, the banks approved new loans totaling SEK 5 million. Similar agreements were reached with foreign banks during the spring of 1933. The immediate crisis was thus averted.

Several long-term problems remained to be solved, however. During the 1920s, Ericsson had established concessions in several countries in which companies were granted licenses by the government to build and operate telephone systems. This guaranteed sales of Ericsson products, but such operations were very capital-intensive and had become a serious burden on the company during the crisis. In three cases, Finland, Argentina and Mexico, immediate action was necessary. In the first case, an agreement was reached in 1934, while Marcus Wallanberg was forced to work on solutions in the other two cases until long after the end of the war.

By 1934, however, Telefonaktiebolaget L M Ericsson could begin working its way out of the slump. Economic conditions improved, but substantial write-downs of the company’s assets were considered necessary. Only in 1937 could a dividend once again be paid to the shareholders, who had received nothing for five years. The Kreuger & Toll estate gradually paid off its debt. When the estate was finally liquidated in 1941, Ericsson had received SEK 51 million and written off SEK 14 million of its original claim of SEK 65 million. The final ties with the Kreuger group had now been cut, and the financial difficulties resulting from the 1930s crisis were over.

Author: Ulf Olsson


Marcus Wallenberg was a member of the board 1933-1953, and chairman of the board 1953-1977.

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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