Findus, the former frozen foods division of Nestlé, was acquired in 2000 by the Swedish private equity firm EQT, which occupies position 21 in the global buyout fund rankings. Swedish Food Workers Union (Livs) journalists Gunnar and Malin Brulin recently interviewed the two union representatives on the Findus board. In the May issue of the Livs journal Mål & Medel, they tell a "hair-rising" tale of 6 years of asset stripping which brought the company to the brink of ruin…
“It nearly went straight to hell!”
Trade union reps on corporate board reveal how former owner EQT mismanaged Findus
A heated debate is going on about how private equity firms are evading taxes and making their directors rich.
Tommy Andersson and Björn Bergstrand were on the board of Findus, as representatives of the employees, when EQT, Sweden’s largest private equity firm, took over the food company and did a reshuffle in the hectic period of 2000-2006.
This gave them a hair-raising look behind the scenes at how EQT was ruthlessly selling off assets to make fast profits, while mismanaging the company.
This is their story.
“Having EQT as our owner was a disaster. It almost went straight to hell. At its worst, we weren’t even sure if there was enough money left to pay our wages,” says Tommy Andersson, president of the Livs branch at Findus.
Findus is a unique company. For the inhabitants of Bjuv it has strong links with the town. It has been a principal employer for generations. Many of the farmers in the area are suppliers to the company.
The company dates back to 1941, when the family-owned company Marabou bought the small company Skånska Fruktvin & Likörfabriken in Bjuv. Soon after, it was renamed Findus (a diminutive of FruktINDUStri), and in 1945 Findus launched its first deep-frozen products in Sweden.
In 1962, the company was bought by the food giant Nestlé. The employees gradually accepted the situation. After all, their jobs seemed fairly secure. For a while, Findus, with its 1,000 employees, was the largest company in the Swedish food industry. The corporation also owned factories throughout Europe, specialising in frozen food products.
Towards the end of the 1990s, however, Nestlé indicated its intention to sell Findus. In February 2000, the new owner was revealed as the relatively unknown Wallenberg-dominated private equity firm EQT.
Local union president Tommy Andersson and head of the health and safety committee Björn Bergstrand were on the board as employee representatives. Initially, they believed it was an advantage that the new owner was a Sweden-based company. That it was a private equity firm did not worry them.
Everything seemed fine. EQT would ensure that Findus was listed on the stock exchange and that investments would be made. A few Dutchmen from the large TNC Procter & Gamble were recruited to the Findus management.
“The Dutchmen promised to make new investments and develop the company,” says Tommy Andersson.
But these promises came to nothing. Instead, the Dutchmen initiated a complex round of buying and selling. The year after EQT had bought Findus, it also took over Frionor with plants in Norway and Thailand.
The Norwegian plants were closed almost immediately, while the ones in Thailand were kept on.
The ready-meals plant Indra in Helsingborg was one of the Swedish Findus plants that were closed down. Production was relocated partly to Bjuv and partly (including pancake production) to the UK plant.
When Findus was at its largest during the EQT ownership period, the company had subsidiaries in 15 countries and nearly 3,000 employees. Attractive headquarters were opened on Queen Street near Buckingham Palace in London, in anticipation of intensified collaboration with the British food supermarket chain Tesco.
But the project was not a success. The Findus management had to close its London offices and the Dutch corporate management which had spend a great deal of time in London had to move to Sweden. They did not want to relocate to Bjuv, apparently, because the head office that had always been in the small industrial town was moved to Malmö.
“Nobody really understood why, because Findus didn’t have a single customer there. But EQT reasoned that production and administration were two separate things. It was probably the distance to the airport in Copenhagen that was the real decisive factor,” says Tommy Andersson.
The plant in Bjuv now underwent a number of cost-cutting measures. The first to be made redundant were white-collar workers. Out of the 200 R&D staff, some 160 were laid off straight away.
“The Dutchmen just said they were too many. They often did that, came and told us there were too many here or too many there,” says Tommy Andersson.
“Their philosophy was to cut back on practically everything except advertising,” says Björn Bergstrand.
The company’s own in-house training of staff which had been called the Nestlé School prior to EQT, and which the trade union had put great effort into achieving, was put on hold.
The Dutch managers were completely ruthless. Tommy and Björn give a few examples. Just after the factory had been declared smoke-free, the Dutch Group CEO came down the corridor with a lighted cigar in his hand. Someone on the office staff told him smoking was prohibited.
“He asked who had ordered the office worker to go around telling people. And then he was sacked.”
Big meatballs only
They go on to relate how Henk Spoon, marketing director, decided that Findus should stop selling small meatballs one Christmas, and only have large meatballs. The result was that they didn’t sell a single meatball that Christmas.
“It was a terrible time. Everyone could see that things were bad, but nobody dared say anything. The executives especially were scared out of their wits.”
They estimate that some 300 executives in Bjuv lost their jobs under EQT. And hardly any investments were made in the plant. Nevertheless huge loans were taken.
“I lost track of how many loan agreements we signed. EQT had to keep changing banks when they didn’t fulfil the loan requirements. And the company was constantly in the credit rating magazine Justitia for not paying its bills. We couldn’t even buy petrol with the company’s credit cards,” says Björn Bergstrand.
He recalls how Tommy Andersson almost literally got the management against the wall and demanded to know if there was enough money to pay the wages.
“Yes, that’s how bad it was,” says Tommy Andersson. Even the Bjuv Local Council reacted when the company stopped paying council bills. Another ordeal was the farmers wanting to be paid for their produce.
Everything was in short supply. In the end, it was so bad that one woman on the production line grew tired of everything breaking down and went to the hardware store and bought the nuts that were missing with her own money.
“She bought 20, and the eight she didn’t need she donated to the company,” says Björn Bergstrand.
The Dutchmen started selling off the company’s property, including two dwellings that belonged to Findus outside the plant.
“I believe they did it to make the books look better and hid the deficit,” says Tommy Andersson.
In 2003, Tommy and Björn tried to get the EQT management to take action.
“We tried for three and a half years, but EQT wouldn’t listen. I don’t know how many times I called Håkan Johansson who represented EQT on Findus’ board of directors. Finally, we managed to persuade him to come down to Bjuv. His message to us, when he came, was that our perspective was too narrow. We were too community-based.”
What really took place during those years is hard for Tommy and Björn to know entirely. In three years, EQT had spent more than one billion kronor. Where had all that money gone?
“We could see that money was being siphoned off to the UK. They told us it was invested in production facilities there.”
As employee representatives on the board of directors, they had access to information, but it was not easy to interpret.
“People seem to believe that we employee representatives are economists, but we aren’t. We’ve been to a few courses, but there’s a lot you can hide from us if you’re a sharp financial controller. And our language skills weren’t that good either. We have English from school, but they were talking business English,” says Tommy Andersson.
Findus’ sales did not increase noticeably. Products were phased out or added. Their overall estimate is that more products were phased out than added.
The management had stated that it wanted to sell off parts of the production facility in Bjuv.
“We suspected that they wanted to split the plant up. There was a lot of talk. So many rumours,” says Tommy Andersson.
The colonial goods (production of soup, mayonnaise, etc) seemed to be the management’s main priority to sell, but the plans never came to anything. The bids they received were not adequate.
Tommy and Björn have been with Findus a long time, Tommy for 38 years and Björn for 30. And their many years of experience meant that it was painful for them to be on the board and witness how badly the company was being run.
Letter of warning to EQT’s management
“In the end, we joined forces with the white-collar unions Sif and Ledarna, and wrote a letter to the owners where we said that enough was enough. That the people running the company knew nothing about food,” they explain.
The letter was dated 16 January, 2004, and addressed to Conni Johnsson, The CEO and founder of EQT, and Claes Dahlbäck, the Wallenbergs’ representative on the board. The letter heading reads: “4 years with EQT – soon there will be nothing left”.
In the letter, the local unions call the Findus group a sinking ship. After all the cutbacks there was no more hope for the future.
They wrote that it must be some kind of record in the Swedish food industry for a company to squander a billion Swedish kronor in three years, and asked if there was anyone on the owner side who could see where this was leading. “When will you slam the brakes on this plummeting financial situation?” The trade union branches demanded in the letter that the Group management team be replaced and threatened to turn to the media if nothing was done.
“I think the letter helped,” says Tommy Andersson. “I think it was our threat to go to the media that prompted EQT to finally take action and replace the management. The Dutch management team nearly killed Findus. they stripped the company of everything they could.”
At the last board meeting with the Dutch team, Tommy and Björn voted four times against continued investments in the UK. The meeting was adjourned four times on this account. The company legal advisor tried to mediate and the atmosphere grew more and more tense.
“I recall that the Group CEO’s yellow shirt got wetter and wetter with perspiration,” says Tommy.
As board members, he and Björn were co-responsible for all decisions, all loan agreements they signed.
“We were really trapped. We had to request help to understand what was going on,” they continue.
So they turned to one of the financial controllers of the company for information. This annoyed the Dutch CEO.
“He told us we had no right to go to others for information. That it was a criminal offence. That it could put us in prison. But I knew he was wrong. As a member of the board, we were entitled to see the books and get access to information. The person we talked to told us the situation, she gave us the truth.”
They concluded that the company assets were being siphoned off. There was hardly any cash left. Turnover in 2003 fell by 8 per cent, and the losses continued to increase over the first months in 2004.
In April 2004, the EQT management finally got the message and had had enough of the Dutch directors. The Findus management team was replaced. Carel van Bremmelen got 22 million kronor as a “thank you” for what he had done. A golden handshake equivalent to two years’ salary.
One year later, in April 2005, EQT sold off the British part of Findus to a former colleague, Geir Frantzen, who continued to operate the company under the same brand name and in close cooperation with the group.
Small profit from sale
The following year, in January 2006, EQT sold the remaining part of Findus to the British private equity firm Cape Vest. By that time, the Swedish equity firm had sold off six plants and countless sales organisations. They claimed that what remained was the core activity.
“I don’t know if EQT made any money in the end. I don’t even care. I’m just happy that we’ve seen the last of them,” says Tommy Andersson.
EQT’s man on the Findus board: “It was a good deal for everyone”
Håkan Johansson, investment director for Findus at EQT, denies any cashflow problems. He claims Findus was a good deal for everyone involved.
Håkan Johansson says that Findus was sold at a profit, but does not want to specify how big a profit.
He also made a profit personally, as a co-investor, but the amount is secret. The financial paper Dagens Industri, however, claims that the profit was marginal.
• Did EQT buy Findus with borrowed capital?
“Yes, that’s always how it is done.”
• How large a proportion was borrowed?
“No comment. It was a normal percentage at the time. If you think it was the debts that led to the problems you are totally wrong,” says Håkan Johansson. “It was the competition from low-price retailers that caused Findus to lose market shares.”
• But no investments were made in the Bjuv plant?
“That’s wrong. We put in a brand new floor and improved the pea line.”
• You cut back on R&D at Bjuv and laid off large numbers of white-collar workers.
“Yes, but that’s because Nestlé had previously had a R&D centre in Bjuv.”
• You also phased out in-house training of staff, the so-called Nestlé School.
“Well, you can hear by the name that it wasn’t our school.”
• In April 2005, you sold off the British part of the company to a board member (Geir Frantzen).
“We had great confidence in him, and we wanted to streamline the Nordic operations. I think we succeeded, and one indication of this is that Findus is now a strong company.
Facts: The purpose of a buy-out is fast money on sale
There are two kinds of equity, “venture capital” and “buy-out capital”.
Venture capital is used for investments in growing sectors and new companies and is intended to generate high profits in the long term. This is necessary for economic development.
Buy-out capital is something completely different. This capital consists to a high percentage of borrowed money, and is used in mature sectors to buy companies or shares in companies that are then rationalised and divided to achieve a higher visual value on sale. Ownership is short-term, from a few months to a maximum of eight years.
Food processing companies are interesting objects for buy-out capitalists, since they have a large cash flow that can be used to pay off interest on loans. The indebtedness entails higher demands on returns in the bought company.
In the case of Findus, EQT behaved like a buy-out capitalist. This had serious repercussions for the employees. This is something that the IUF, the global organisation for food workers, is cautioning against.
The new IUF website www.buyoutwatch.info has more information on how trade unions can help to protect their members’ interests in connection with buy-outs.