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The Rise and Fall of Ivar Kreuger and Swedish Match
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On November 7, 2022 it became clear that a subsidiary of the American tobacco giant Philip Morris would become the majority owner of Swedish Match. The takeover announcement stirred a lot of emotions, but the Philip Morris CEO Jacek Olczak stated that the purpose of the purchase was to increase sales of both companies’ products. Philip Morris reported its Q1 2023 figures 20th April, and while revenue rose 3.2 percent for the entire company, newly acquired Swedish Match delivered a revenue growth of 14 percent (excluding currency changes).
Key Insights
Swedish Match, a prominent tobacco company, experienced a significant takeover by a subsidiary of Philip Morris in 2022, with the aim of increasing sales for both entities.
Swedish Match traces its roots back to its founder Ivar Kreuger, who built a vast empire of companies, including the world's largest match producer in the early 20th century.
Kreuger's empire was fueled by aggressive mergers and acquisitions, government monopolies, and accounting tricks, making him a controlling force in the Swedish Stock Exchange until his downfall.
The Wall Street Crash of 1929 exposed Kreuger's flawed growth strategy, leading to his tragic suicide and subsequent collapse of the Swedish Stock Exchange, known as The Kreuger Crash.
Swedish Match survived the aftermath of Kreuger's downfall, adapted its business to changing markets, and emerged as a successful company with diverse tobacco and nicotine product offerings, experiencing substantial financial growth and going public in 1996.
The Origins of Swedish Match and Ivar Kreuger’s Construction Empire
But where did it all start? As we’re Swedish ourselves, we’d like to tell you the story of both Swedish Match as a company, and about the rise and fall of its infamous founder – Ivar Kreuger.
It all started when Kreuger founded a construction company called Kreuger & Toll together with his cousin Henrik, and Paul Toll back in 1908, which would introduce US patented reinforced concrete to the Swedish market.
After nine years, the company was split into two entities with almost the same name; one for the construction company, which Toll would control and operate, and one holding company which Kreuger would use to invest in what became a huge empire of companies.
One of the companies Kreuger poured his capital into was Svenska Tändsticks AB (the name was changed to Swedish Match in the 80’s, using a simple English translation), which Kreuger himself founded the same year as Kreuger & Toll split, by merging two match manufacturers.
Today Swedish Match is most known for its nicotine/tobacco products, but from 1917 and for the next 15-20 years the company became the world’s largest match producer through aggressive M&A, controlling at least half the world’s production (some estimate over 70%) around 1930.
STAB was able to generate a lot of cash by acquiring government-created local monopolies around the world. This – together with illegal accounting tricks – helped Kreuger to build his enormous empire, making him the controlling party of more than 200 companies around 1931. It’s even said that Kreugers’s companies (fueled by US capital, mainly through his sister company International Match Company) at some point accounted for more than 60 percent of The Swedish Stock Exchange, and a huge part of its daily trading volume.
Below are a few Swedish public companies, besides Swedish Match, of which Kreuger was either majority owner, or the actual founder (often by merging two or more large existing companies, trying to create a monopoly in its industry).
SCA: One of Sweden’s largest forest industry companies ($9B market cap)
Ericsson: Back then one of the largest companies in Sweden, today a multinational telco/networking company ($18B market cap)
Boliden: One of the largest mining companies in Sweden ($8B market cap)
SKF: Still a world leader in bearings ($7.8B market cap)
The Kreuger Crash and the Aftermath
At the height of Kreuger’s career, his fortune reached closer to $100B (inflation adjusted), just before The Wall Street Crash of 1929. The crash came to expose the flaws in Kreuger’s growth strategy, as he wasn’t only using accounting tricks, but also lots of leverage.
The crash unfortunately also led to Kreuger taking his own life in Paris 1932. Something that would further intensify the business problems, as Ivar himself had huge outstanding bank loans, and the ownership structure of subsidiaries and investments were complex, to say the least. The domino effects of this caused a collapse in The Swedish Stock Exchange, sending shock waves all over the world – particularly in the US. This crash has become known as The Kreuger Crash. Swedish Match however, was one of the Kreuger companies who received a government loan, and survived.
So, Swedish Match survived, but the market for matches was now shrinking, making them desperate for new income streams. This led to over 50 acquisitions in a wide variety of industries. Flooring company Tarkett was one of them.
When the Swedish Government abolished the tobacco monopoly in 1960 the remaining business was put into a company called Svenska Tobak AB, which later changed its name to Procordia after a merger with US The Pinkerton Tobacco Company. Procordia later went on to go public in 1989. At that time, Procordia’s largest shareholders were Volvo and the Swedish government, and about four years after the IPO, the company decided to acquire the private match maker and take its name. Shortly after that, Volvo took control of Swedish match, and also took them private.
Swedish Match From IPO to Present
After the buyout, Swedish Match weirdly functioned as a fully-owned subsidiary of Volvo for 2-3 years. But in 1996, Volvo’s Board of Directors decided to distribute the company to its shareholders – the official Swedish Match IPO.
Swedish Match was per may 2022 a $16B company, and its matches and lighters only accounted for about seven percent of the groups revenue, quite ironic considering its name. Nicotine pouches, snus, moist snuff, chewing tobacco, and cigars are instead the bread and butter of the company today.
Further reading: The Rise of ZYN: Redefining Nicotine Consumption
An impressive success story continues
Swedish Match’s ROIC has been stable at around 20-30 percent for the last 20 years, and well above 50 percent for the last six. The EBIT margin has been expanding from 17 percent in 2003 to over 40 percent the last few years before being acquired by Philip Morris. Since the IPO back in 1996, the stock had returned 50x as per May 2022 (excluding dividends).
If you’re visiting Stockholm, you should walk past Kreuger’s luxurious office building called The Matchstick Palace (where Swedish Match was headquartered until 1991), which stood finished in 1928. And guess which construction company that built it? Kreuger & Toll, of course! Fun fact is that two other public companies – Protector Forsikring and Bergs Timber – now have their offices in this building.
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