Swedish Match S.A.

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Swedish Match S.A.

P.O. Box 222
Chemin du Canal 5
CH–1260 Nyon 1
Switzerland
(41) 22 363 93 93
Fax: (41) 22 363 9191

Holding Company
Founded: 1917 as The Swedish Match Company
Employees: 25,600
Sales: $1.3 billion
SICs: 2434 Wood Kitchen Cabinets; 2819 Industrial
Inorganic Chemicals Not Elsewhere Classified; 3996 Hard
Surface Floor Coverings; 3999 Manufacturing Industries

Based in Stockholm, Swedish Match S.A. is a leading global manufacturer of matches, disposable cigarette lighters, floor coverings, cabinets, doors, and packaging materials. During the early 1900s Swedish Match became one of the first companies to achieve a truly global presence. The company employed more than 25,000 workers around the world in the early 1990s and garnered more than two–thirds of its revenues from international operations.

Swedish Match was founded by Ivar Kreuger, an internationally renowned industrial magnate and a controversial figure who was regarded as a scoundrel by some. Kreuger was born in 1880 in Kalmar, a city in southern Sweden. His family owned and operated a match factory that had been started by Ivar’s grandfather. The match industry was relatively young at the time that Ivar’s grandfather started the business. Matches had been produced commercially only since the early 1800s, but a large market had developed since matches were commonly used at that time to light kerosene lamps and gas stoves. By the late 1800s the Swedish match industry was employing 7,000 workers and producing about 40,000 tons of matches annually.

The early Swedish match industry was dependent on international suppliers and buyers. Aspen wood, for example, was supplied primarily by Russia. Chemicals like potassium chlorate, phosphorus, and paraffin were purchased mostly from Great Britain and Germany. Likewise, Germany and England were the greatest export markets for Swedish matches. In fact, Sweden exported about 85 percent of the matches it produced. World War I disturbed the import and export dynamics because supplies were cut and some countries imposed restrictive trade barriers. Nevertheless, by the time Ivar Kreuger entered the business the foundation for his international empire had been laid.

When Ivar Kreuger began his operations in the early 1910s, Sweden had assumed a global leadership role in the match industry. That lead was largely attributable to technological breakthroughs. In 1884 Gustaf Eric Pasch of the Swedish Royal Academy of Science invented the safety match. It utilized red phosphorus (instead of more toxic yellow phosphorus), which was applied to a striking surface rather than the match head. The result was a much safer match. Early match–making machines had emerged as well.

Kreuger exhibited little interest in his family’s enterprise as a young man. His business cunning and penchant for overseas adventure, however, were evident from an early age. As a boy Kreuger stole final term papers from the principal’s office and sold copies to students for the equivalent of five cents apiece. After his schooling, in which he studied engineering, Ivar traveled the globe, taking jobs in South Africa, Canada, Germany, and the United States. His brother, meanwhile, operated the family’s struggling match business. Unfortunately, the match industry at the time suffered from the growing popularity of electric lighting at the time. Only the cigarette smoker market, a major purchaser of matches, prevented further damage to the industry.

Kreuger returned to Sweden when he was 28 years old. He and a fellow engineer, Paul Toll, started a real estate and construction company. Kreuger & Toll was successful, but Kreuger was soon sidetracked by opportunities related to the family business.

The Swedish match industry was highly consolidated by that time. One giant company, Jonkoping & Vulcan, controlled 75 percent of the market and the Kreugers were one of a few small players still competing. Kreuger was intrigued by the challenge of overcoming Jonkoping’s dominance. But he also had greater designs—he believed that he could parlay Sweden’s technological advantages into global dominance of the match industry.

Kreuger’s business savvy, although ethically questionable, was undeniable. During the early 1910s he managed to bring together most of the remaining Swedish match companies, including his family’s, into a single organization called United Match Factories. Kreuger artificially inflated the value of United, making it look as though his company had much more capital that it actually possessed. He used that artificial value to back his takeover of Jonkoping in 1917, thus effectively establishing a monopoly in his home country. When World War I ended a year later, he shifted the focus of his newly formed holding company, The Swedish Match Company, to the European mainland.

During the 1920s Kreuger embarked on an aggressive acquisition campaign, striking deals and snapping up match factories all over Europe. Although his business acumen was revered at the time, his bid for industry dominance would later earn him a reputation for chicanery. For example, it was discovered that he sent secret agents to companies in which he had an interest. The undercover proxies made extremely low offers to buy the enterprises. Kreuger followed these agents in and offered a higher— though still low—price. The practice allowed him to snag new factories at deflated prices. In addition, he often secretly purchased interests in competitors in an effort to avoid national restrictions related to monopolies and foreign ownership.

By the late 1920s the industrious Kreuger had amassed a huge match manufacturing network. He controlled a significant share of the match business in Hungary, Yugoslavia, and other East European countries and acquired major stakes in leading British and American match companies. Kreuger also built new factories in countries like India. More importantly, Swedish Match effectively claimed control of the match industries in Norway, Denmark, Holland, Finland, and Switzerland. The company also diversified into other business areas during this time. By the end of the 1920s, in fact, Kreuger controlled a telecommunications company, a pulp and paper enterprise, and a mining company that owned the third largest gold deposit in the world.

Kreuger’s empire churned out 2.8 million cases of matches annually by 1929, making up about 40 percent of total world match output. But leadership in the match industry was only part of the Swedish Match story to that point, for Ivar Kreuger’s international reputation grew significantly after the conclusion of World War I. Kreuger used part of his massive fortune to make loans to needy national governments battered by the war. Although many of the loans were used to secure permission for Swedish Match to develop a monopoly in the borrower’s country, Kreuger’s post–war lending to financially troubled governments was viewed by many as magnanimous. By 1930 Kreuger had doled out more than $350 million in loans to a dozen different countries.

In less than a decade, Kreuger had built one of the largest international companies ever created. His business acumen had achieved legendary status. Hundreds of millions of dollars flowed through his diverse holdings of companies, which were organized under four divisions: Swedish Match; Kreuger & Toll; International Match (New York); and Continental Investment (Liechtenstein). Kreuger’s enviable reputation as a socially conscious business leader continued to grow, particularly after he made a celebrated $30 million loan to Germany to help it pay war reparations. That move earned him the title of “the savior of Europe” from some politicians at the time.

Kreuger shocked the global financial community when he shot and killed himself on March 12, 1932. His suicide in his Paris bachelor apartment capped the end of his two–year effort to keep his collapsing empire glued together. The previously hidden weaknesses of Kreuger’s mammoth enterprise were exposed following the global financial meltdown spurred by stock market crashes around the world. As the value of his companies plunged, Kreuger’s personal liabilities ballooned past the $250 million mark and his companies were unable to meet their obligations. Kreuger took desperate measures, even going so far as to forge $142 million worth of Italian government bonds and promissory notes. Kreuger himself forged the signatures needed on the notes, but misspelled the names. The ruse failed and Kreuger’s reputation was damaged.

It was later discovered that Kreuger’s dynasty was built partially on overvalued assets and deceptive accounting practices. Although his business acumen was undeniable, Kreuger had consistently engaged in questionable reporting practices in an effort to expand his holding company. “Throughout his bizarre career,” wrote Robert Shaplen, author of the 1960 biography Kreuger,” Kreuger alone supplied the figures for the books of his various companies, and he mostly kept them in his head.” Backing that assertion was Allen Churchill’s The Incredible Ivar Kreuger, who noted that a former secretary of Kreuger’s claimed that Kreuger once dictated the text of the annual reports for his four companies in a single afternoon— “I accounted for it by the fact that I had often been told that he was a genius,” she explained.

To Kreuger’s credit, he was a highly intelligent business man and financier. Many of his defenders contend that, while his dealings may appear shady in retrospect, at the time many of his activities were representative of the norm. Shaplen’s biography related the following excerpt from a statement made by Kreuger to Bjorn Prytz, a Swedish tycoon and diplomat: “In olden times, the princes and everyone would go to confession because it was the thing to do, whether they believed it or not. Today the world demands balance sheets, profit–and–loss statements once a year. But if you’re really working on great ideas, you can’t supply these on schedule and expose yourself to view. You’ve got to tell the public something, and so long as it’s satisfied and continues to have faith in you, it’s really not important what you confess.”

Teams of attorneys, bankers, and accountants labored for four years sorting out Kreuger’s affairs and divvying up the remains of his companies after his death. The Price, Waterhouse accounting firm finally calculated that Kreuger had inflated the earnings of his companies by more than $250 million between 1917 and 1932. Millions of dollars were never accounted for, and Ivar’s brother, Tortsen, was sent to jail for one and a half years. After his release, Tortsen spent much of the remainder of his life trying to prove that Ivar was murdered. Tortsen’s story fell on deaf ears and the company was wrested from Kreuger–family control.

The Wallenberg family of Sweden came to the rescue of Swedish Match. In an agreement that involved a transfer of $15 million from Stockholm to New York, Jacob Wallenberg was able to gain control of the injured enterprise. The company lost its monopoly contracts with foreign governments and was diminished in size and strength. Nevertheless, Kreuger had amassed massive holdings in the match industry that allowed Swedish Match to sustain its market leadership.

Following World War II and throughout the mid–1900s, Swedish Match tried to expand its match business. Swedish Match purchased the Cricket disposable cigarette lighter division of Gilette in the mid–1980s, a purchase that—combined with its own Feudor and Poppell lighter brands—gave Swedish Match a hefty 15 percent of that global market. The company’s entrance into the cigarette lighter business illustrated how much Swedish Match had changed since Kreuger’s reign. Indeed, in an effort to squelch competition from lighter manufacturers, Kreuger had succeeded in getting some countries to ban the use of lighters in public—those laws lingered on the books for several years in a few nations.

By the late 1980s matches made up less than 25 percent of Swedish Match’s global sales. Still, the company remained the largest manufacturer of matches in the world and continued to improve its position in the world market. In 1980, for example, Swedish Match bought out Universal Match, the largest producer of matches in the United States. In 1987 it acquired Britain’s second–largest match manufacturer, Wilkinson Sword. The latter purchase gave Swedish Match control of a leading 25 percent world match markets. Going into the early 1990s, Swedish Match employed more than 25,000 workers globally and generated annual revenues of more than $17 million, about $250 million of which were attributable to U.S. sales.

The company also diversified into several other arenas. Swedish Match company purchased Tarkett, making it the second largest manufacture of floor coverings in the world by the late 1980s. Swedish Match also acquired cabinet makers Marbodal and HTH, and door maker Sweedor, which made it the biggest producer of doors in Sweden. Other acquisitions included forays into packaging material and razor blade industries.

In 1988, Swedish Match was acquired by Stora Kopparbergs Bergslags AB, a diversified company and among the largest forestry companies in Europe. Stora reportedly paid SKr 5.9 billion for Swedish Match, in its efforts to enhance its line of raw materials with consumer products businesses. Stora’s parentage was short–lived, however, as Swedish Match was sold to Volvo in 1990. As Swedish Match entered the mid–1990s, another change of ownership seemed imminent, as Barings Bank plc entered final negotiations to purchase Swedish Match in 1995.