Mamma Mia! In what might be described as something akin to a musical comprising songs from pop sensation ABBA, one of Sweden’s best exports alongside IKEA, Volvo and the Saab JAS 39 Gripen airfighter, prestigious and award-winning Swedish trading technology firm Cinnober, whose systems are used by exchanges and clearing houses around the globe, could potentially be acquired or split up if it does not get its house in order following recent interim losses and a boardroom spat.
It centers on the departure of Veronica Augustsson, the company’s CEO of five years standing last month, following open differences with the chairman and co-founder over the direction the company should take.
According to Swedish business magazine Veckans Affärer, in 2017 she was rated the eighth-most-powerful female CEO of a listed company in the Swedish business community. And, in the wake of her appointment as CEO was mentioned in Financial News’ “40 under 40 Rising Stars of Trading and Technology” list.
Of course, disputes over strategic direction between CEOs and chairmen probably happen more often than we should know about. People at boardroom level are human like you and me after all. But the exchanges business is an incestuous industry like many others.
The trouble is when its gets reported by the media and stirs up more speculation about what is happening within the company in question. And, washing your laundry in business circles, so to speak, is not a typical Swedish trait.
In an interview last month with Swedish online business channel Realtid.se, Augustsson admitted that she and the chairman Nils-Robert Persson, who is also Cinnober’s biggest shareholder, “have not had the same view on how the company will be pushed forward for a while.” However, she noted that she was still satisfied with her efforts.
“I am extremely proud of my entire trip as CEO. It is today a completely different company than it was six years ago. We have broadened the company and completed a stock market introduction [2011],” she was quoted as saying on August 15.
And, while it is not unusual that the CEO and Chairman in a company can have differences of opinion on strategy or the Board might think the CEO is not delivering on expectations, this can normally be solved by “buying” the silence a departing CEO with a “golden handcuff” (i.e. a quite generous payoff and the CEO says nothing publicly thereafter in media), they have time off and can get ready for a new challenge.
Now it could be in this case that the leaving CEO did not receive such a sufficiently generous payoff to ensure silence.
Sweden has always been long known for its expertise and prowess when it comes to trading technology over the years. OMX Gruppen (OMX), which was acquired by in 2007 by U.S. exchange NASDAQ for $3.7 billion (although Borse Dubai had offered $4 billion, before settling for a 20% stake and 5% of votes of NASDAQ).
Among the nation’s top 10 exports by value in 2017, machinery (including computers) accounted for $25 billion and was equivalent to 16.3% of total exports.
From a continental perspective, around 71% of Swedish exports by value were delivered to fellow European countries, while Sweden shipped some 13.4% to Asian importers, and 7.8% went to North America and 1.9% found their way to clients in Africa and 1.5% to Latin America (excluding Mexico but including the Caribbean).
Why Did It Have To Be Me?
So, what has gone so terribly wrong for a company considered in Sweden as a “flagship” company that was founded in 1998, which provides exchange and real-time clearing technology serving trading firms and clearing houses globally from North America to the Far East? Well, the developing drama and schism between the company’s now ex-CEO Augustsson and the chairman and major shareholder, Nils-Robert Persson (see table below).
After an earnings call around the interim results published on August 23 (for the second quarter) Cinnober’s share price declined to SEK 49 (a low in the past 52-weeks) and saw an unusually large block trade go through in the company’s shares on the day of the results.
But in recent weeks under the appointment of CFO Peter Lenardos to new CEO, the stock price has recovered somewhat to around SEK 65 (c.$7.14) as today at the time of writing (September 6) - up SEK 1.9 (c.+3%) over the course of the trading day - with a matter of 7,000 shares exchanging hands. This contrasts with a record high of some SEK 101 (c.$11.10) during the past 52 weeks. Nonetheless, the stock is down 23.59% year to date.
Lenardos, a dual U.S. and British citizen who was born in 1975, was formerly a Managing Director in the Royal Bank of Canada’s (RBC) London office. At RBC, he established the global market infrastructure and European diversified financials franchises, and developed strong C-suite relationships across the market infrastructure and asset management sectors.
He is regarded as a good choice as CEO and a steadying influence. However, some have suggested that as will be working remotely for the company - spending two to three days a week in Stockholm whilst still living in London, this “might not be a successful strategy” according to a source in the capital markets who declined to be named. It is rumored that Lenardos has requested that Persson step down and be less active in the affairs of the company.
According to well informed sources in the capital markets in Stockholm and The City of London, matters around the conflict between the two - Augustsson and Persson - in the boardroom centered on the future direction of the company, which had come to a head last month with the departure of the then CEO. But the rumblings and split vision had been brewing for a number of months.
The odd thing though is that the CEO took to disclosing that spat - if one can label it as such - with the chairman in the pages of the Swedish media.
One might also ask from all this, should it have been the chairman that went rather than CEO or who would have been less expensive from the company’s perspective or not? Food for thought, but I guess it’s all down contractual matters that play a hand in such things.
A number senior people in the company have left too including in recent months Per Lovén, formerly of block trading firm Liquidnet. Cinnober as group had grown to around 350 employees, but 28 staff (-7.5%) - both permanent and contractors and mostly outside Sweden - had gone from the company as of June 2018. It meant the number of permanent staff declined to 307 from 334 as at March 31, 2018.
The kind of behaviour exhibited by the former CEO is considered very “un-Swedish”, where when such parting of the ways occur when people involved normally go quietly with a “golden handcuff” - ensuring that they will keep their silence about what they departed. This was not the case with Cinnober.
But at least you have to applaud her for having the courage for speaking out, even if it might have been uncomfortable. Indeed, internationally recognized leadership and employee engagement experts Karin Hurt and David Dye, who co-authored Winning Well: A Manager s Guide to Getting Results Without Losing Your Soul, have stressed that businesses today need their employees to speak up - and now more than ever.
So, it might not be at the Board level, but FOSU (aka ‘Fear of speaking up’) is a growing problem in the workplace today with research showing that only 1% of employees feel “extremely confident” expressing their ideas or concerns at work. Obviously in Augustsson’s case she did, but paid the price.
OK - you might say, Cinnober is not the biggest company in the world. True, listed in Stockholm it typically trades a couple of thousand shares a day and as at the time writing today had market capitalization of just over SEK1.478 billion (c. $164 million). It’s really more about what the significance of such CEO and Chairman disputes say, imply and what lesions can be learned - if any.
In a way, Cinnober represents the sort of company where their shares that should not really be traded give the low daily volume. There is very little free float. That said, on the day of the company disappointing second-quarter (Q2) earnings call a block of 200,000 shares were sold on NASDAQ First North.
The interim loss reported in the second quarter on August (for January 1 to June 30, 2018) amounted to -SEK 7.7 million (-SEK 28.9 million/c.$3.17 million), with the result from financial items being positively impacted by a SEK 32.8 million (c.$3.6 million) gain in connection to the 60% divestment of Irisium to KRM22 technology and software investment company. This move was said to help accelerate Irisium’s growth and consolidate the surveillance market, which Cinnober is held in high standing
Cinnober’s Top 10 Shareholders
Stockholder Number of Shares Equity In %
Nils-Robert Persson * 3,379,407 15.1
Swedbank Robur Ny Teknik BTI 2,175,000 9.7
Gunnar Lindell * 790,317 3.5
Handelsbankens Nordiska Småbolagsfond 730,227 3.3
David Zetterlund 727,400 3.2
Peter Lenti * 716,003 3.2
Försäkringsaktiebolaget, Avanza Pension 689,117 3.1
Peter Snellman 654,000 2.9
Jpmel - Stockholm Branch 650,000 2.9
Humle Småbolagsfond 606,277 2.7
Source: Cinnober’s website. As of July 31, 2018, there were 2,530 shareholders in Cinnober. * Signifies company founders.
‘Stock Exchange’ Towers
Down at ‘Stock Exchange Towers’ in The City last December we saw how matters came to a head between the CEO of the London Stock Exchange Group (LSEG), Xavier Rolet, and the chairman. In this particular cause the exchange’s share price held up pretty well throughout. In the more recent debacle at Cinnober, the share price has wobbled and is around 50% off its trading high.
Though the exact details behind the dispute in the boardroom at the LSEG are cloudy, what we do know is that the CEO was not exactly happy and departed. Some like, Christopher Hohn, head of the hedge fund TCI (The Children’s Trust), which held a stake of around 5% in the LSEG requisitioned an Extraordinary General Meeting (EGM) with resolutions calling the chairman to be sacked and Mr Rolet’s tenure to be extended.
As transpired the chairman received the institutional backing needed to defeat the motion about him, while the other one involving Rolet was effectively dead as the CEO had decided to go before the EGM was convened in London.
CEO & Chairman Strife
Augustsson attempted to integrate Cinnober’s business activities more horizontally, in an effort expand outside exchanges/clearing areas to the trader/broker market. According to a source in Swedish capital I spoke to: “That might have been a feasible strategy as sales to the exchange market is a fairly mature market. And, she could well have been right.”
However, it appears this vision did not sit comfortably with chairman, who held other views.
Amid all this strife, the cash burn of the company is high and they could be running out of money. This might prompt them to go back to the market again, after they had a right issues raising SEK 175 million (c.$19.22 million) not that long ago. If they did have to tap the market again it would not look good.
“What really strikes me is that the fundamental mistake they made was in capping the rights issue at SEK 175 million given that appetite in the market at the time would have allowed them easily raise double that amount,” the Swedish source indicated.
They added: “Now if they need to go back to the market again for additional capital, which is quite possible in perhaps six months, which would not be perceived as a very positive thing by the market.”
I Have A Dream
Looking to the future there are number of scenarios for Cinnober. Clearly, the fortunes of this independent company could recover under the helm CEO Lennardos, provided he has the mandate to execute on plans and not held up in his vision by suspicious minds in the organization.
But it won’t necessarily be easy. Former CEO Augustsson was in the role for six years (as well as 16 in the company in total). And, a former CEO from 2012, Javier Tordable, a Spaniard (we could call him ‘Fernando’ in our ABBA analogy), lasted around six or so months but came to the task with much energy.
Add to that, the former CTO, Peter Lenti, who is also a founder of Cinnober, has stepped down from his formal position and is now some kind of senior advisor. He has also sold off a fair chunk of his stock in the company. As has co-founder Gunnar Mjöberg, who is still employed by the company, and co-founder Pär Bertilsson, who left the concern back in 2011.
Takeover Target?
Potentially the company could be subject of takeover/bidding war, or perhaps get split up or private equity could come in and take an interest. “I would think the takeover scenario is quite possible,” the Swedish source contended. They added: “It could recover under the new CEO. But alternatively it could also find itself a takeover candidate or a bidding situation... or be split up.”
The private equity route might be a way for the company’s founders to exit some of their holdings while the entity recovers - and before it could ultimately be sold on. After all one has to bear in mind the founders are now in the 60’s and may want a way to liquidate their holdings.
The firm might also be of interest to an exchange, although buying Cinnober would no doubt be duplication. “They [an exchange] could potentially obtain the building blocks to their own infrastructure.”
Of course we saw Nasdaq acquire OMX Technology team in Stockholm, which sells to exchanges all over the world. But more recently Goldman Sachs acquired Pantor Engineering, a Stockholm-based trading technology specialist, two years ago.
Against this background, it is interesting to note that it was reported this May that Goldmans planned to more than treble the size of its Swedish office and use the country’s financial technology expertise to bolster its European shares trading, using it as a post Markets In Financial Instruments Directive (MiFID) hub.
However, while there are no plans on the table - or at least communicated in Cinnober recent interim earnings call - it needs to find a way back to profitability.
So, is there any room for optimism going forward? Well, in Cinnober’s case some wise decisions will have to be made by the current CEO and successfully executed if full confidence is to be restored. Of course, big decisions should be made slowly - citing ‘Andante Andante’ by ABBA from ‘Mamma Mia II’ - but time may be against the company on that score.
That said, at least some recent positives can be highlighted with Cinnober strengthening its management team in recent days (September 4, 2018) with three senior appointments to “achieve profitability” in the coming year, namely Fredrik Nihlén as Cinnober Group CFO, John Yonker as Simplitium CEO and Patrick Tessier as Minium CEO (both companies wholly-owned subsidiaries of Cinnober).
Add to that, the Asia Pacific Exchange (APEX) was announced as launching its new marketplace, operating with Cinnober’s real-time clearing solution and the Irisium surveillance platform from Q2’s interim financial statement.
More recently late this August, Simplitium signed an agreement with Chedid Re, a Chedid Capital company and listed among the top 20 reinsurance brokers in the world and number one n the MENA Region, to use CatRisk Solution’s Middle East and Africa Earthquake Model on ModEx, the multi-peril catastrophe risk modelling platform operated on the Oasis Loss Modelling Framework.
All that said, more such these deals will no doubt be needed to bring a return to company profitability. And, if the current CEO does not get things right he could be “toast in 6 months” according to our well-connected source in Stockholm. Watch this space.
Subsequent to this article being published, U.S. exchange Nasdaq made a $190 million bid on September 14 to buy Cinnober.
