Reykjavík Grapevine - 16.07.2010, Blaðsíða 10

10
The Reykjavík Grapevine
Issue 10 — 2010
The most iconic image of the Ice-
landic financial bubble was that
of the ‘Corporate viking’—the fi-
nancier who engineered one dar-
ing takeover after another: One
day buying a British supermarket
chain, the next a Swedish real-es-
tate holding company, then turning
around to buy a Danish airline. No
foreign asset was safe from the lev-
eraged might of these marauding
financiers.
The ‘Corporate Vikings’ were celebrat-
ed by the media and politicians, most
notably the President of the Republic,
as well as the Chamber of Commerce,
which concluded in its infamous 2006
report, Iceland 2015, that the raw capi-
talist spirits that drove Icelandic busi-
nessmen were in fact an expression of
some ingrained Icelandic values welling
up from deep within the national soul.
This nationalistic theme makes repeat-
ed appearances in the speeches of the
President.
By evoking the image of the Saga
Age, the financial plutocrats that
emerged in Iceland after the turn of
the century were given a certain le-
gitimation: The ‘Corporate Viking’ was
portrayed as an natural heir to the Ice-
landic historical tradition, in fact as the
resurrector of a lost history. Finally, af-
ter a thousand years, Iceland was again
home to ‘real’ Vikings who could strike
fear into the hearts of foreigners.
TyCOONIFICATION
Giving the tycoons and their deal mak-
ing a place in the history of Iceland was
all the more important because Iceland
had historically been a very egalitar-
ian society. Gunnar Karlsson, one of
Iceland’s most respected historians,
has famously argued that Iceland was
by and large a “classless society”. The
chasm between those who were better
off and those who were not was never
particularly wide. In the context of Ice-
land’s history, the tycoons were unde-
niably something alien.
In fact, there was no place in the
narrative of Icelandic history for the
heroic financier, and no historical
predecessors the tycoons could style
themselves after. In Iceland, the indus-
trial revolution was as much a history
of farmers-turned-sailors-and-fisher-
men—the history of a resilient work-
ing class, determined to improve its lot
through hard work and determination—
as it was a history of wealthy capitalists.
The wealth of modern Iceland had not
been created by some John Galt char-
acters: The Icelandic people had pulled
themselves up by their bootstraps.
When the tycoons and oligarchs
arrived on the scene at the turn of the
century, it was therefore necessary
for them to invent a historical role for
themselves. And so by 2007, the idea
of the oligarchs as ‘Corporate Vikings’
and therefore rightful heirs to the most
enduring image of Iceland’s national
character and Icelandic masculinity,
had taken root.
“THE MOST POWERFUL CORPO-
RATE vIKING”
The ‘Corporate Viking’ image was nei-
ther the first nor the most obvious his-
torical role for the tycoons to assume.
For one, while their activities abroad
have gained the greatest attention in
the public mind, these were all predi-
cated on previous success back home
in Iceland. In fact, the concept does not
appear in the press until 2006, at first as
a colloquial term but by 2007 it appears
to have gained common acceptance.
In July of 2007, the business weekly
“The Market” (Markaðurinn) profiled
Björgólfur Thor Björgólfsson in a fea-
ture titled “The most powerful Corpo-
rate Viking”. By this time, of course, the
Icelandic invasion to the British Isles,
Scandinavia and the continent was in
full swing.
Before they became ‘Corporate Vi-
kings’ the most illustrious tycoons were
known as “transformative investors”.
Case in point is Björgólfur Thor, who
had over the previous years identified
himself on numerous occasions as a
“transformative investor.” Björgólfur
was not alone. Just as all ambitious
businessmen were identified as ‘Cor-
porate Vikings’ during the bubble’s
crescendo in 2006–2008, most tycoons
and investment companies defined
themselves as “transformative inves-
tors” in the period between 2002–2006.
The transformative investor talked
about finding “dead” or “idle” capital
in companies, as well undervalued as-
sets—which was referred to as search-
ing for “hidden” assets. According to
the prevailing discourse, the trans-
formative investors would step into
moribund companies and transform
them—presumably making them able to
participate in the globalised economy
of the 21st century. The strategy always
involved massive leverage and rapid
growth through acquisitions. When the
opportunities for acquisitions in Ice-
land had been exhausted, sights were
increasingly turned abroad. A second
reason was that while asset prices had
risen in Europe, they were still relatively
cheap compared to the vastly over-
priced Icelandic market.
AGENTS OF CHANGE
The difference between the two terms
is interesting. Unlike the ‘Corporate Vi-
king’, the ‘transformative investor’ was
neither an heir to tradition nor history.
In fact, he was just the opposite: He
was the dissolver of traditions and an
agent of change. The transformative in-
vestor aimed to “dissolve complex webs
of ownership among companies and
increase their profitability,” as Björgól-
fur Guðmundsson, father and business
associate of Björgólfur Thor Björgólfs-
son, put it in 2003. Björgólfur argued
that this was all the more important be-
cause Icelandic companies were far too
often concerned with protecting politi-
cal power and influence at the expense
of profitability or efficiency. His goal,
however, was to “breathe life into the
stock market, break up the ossification
of Icelandic business community and
ensure that investments were aimed at
achieving maximum profitability[...]”.
This was the gospel of “share-
holder value”—the idea that the over-
riding concern of managers should be
the share price and thus the wealth of
shareholders. And it received a ready
audience, partly because the way in
which Björgólfur identified the problem
rang true to many people. The complex
connections and webs of interlocking
directorships between the largest cor-
porations and the unhealthy mix of poli-
tics and business were seen by many
as perhaps the worst ailments afflicting
the Icelandic economy. This state of af-
fairs was the result of the tightly regu-
lated economy of the post-war years
and the virtual division of the economy
into three blocs: publicly owned firms
and then the feuding blocs of the coop-
erative movement and private business.
With privatisation and the collapse
of the cooperative movement in the
1990s, the remaining bloc, commonly
referred to as ‘The Octopus’ (Kolkrab-
binn), dominated by the shipping com-
pany turned conglomerate Eimskipa-
félagið, seemed like a living fossil—a
dinosaur that had to be put out of its
misery if the Icelandic economy was to
enter the 21st century.
‘THE OCTOPUS’ DISMEMBERED
And sure enough, in September of
2003, the Björgólfurs made a move
against Eimskipafélagið. On September
18, Landsbankinn, which the invest-
ment company of the father-son team
controlled, Íslandsbanki and the invest-
ment company Straumur announced
the largest and most complex deal in
the history of Icelandic business. Con-
trolling stakes in some of the largest
and most stable firms were divvied up.
Eimskipafélagið, including its shipping
operations, its investment arm and its
fishing subsidiary, which was one of
the largest in Iceland, went to Lands-
bankinn and the Björgólfurs. Fluglei-
ðir, the parent company of Icelandair,
went to Straumur, which then sold it to
Hannes Smárason and the insurance
company Sjóvá went to Íslandsbanki,
which later sold it to Karl Wernersson.
However, severing the ties between
the individual companies that made
up the core of the ‘The Octopus’ was
only the first step. Eimskipafélagið and
Flugleiðir were broken up, subsidiaries
as well as other assets and operations
were sold off as the companies piled
on debt, all with an eye to maximising
short-term profits. After all real assets
and operations had been sold off, what
remained were stripped down invest-
ment companies.
The shareholders of Eimskipafélagið
and Flugleiðir, people who had bought
shares in two of the oldest and pre-
sumably safest publicly held compa-
nies in Iceland, now found themselves
shareholders in leveraged investment
companies. Much like the people who
had in the ’90s bought shares in the
Icelandic stock market mutual funds
that were transformed into leveraged
investment firms after the turn of the
century (see Grapevine, issue 8, 2010),
the average shareholder was taken for
a ride.
A MASSIvE ASSET BUBBLE
By and large, the media went along and
reported breathlessly on the “realised
profits” achieved from these asset
sales. A careful reading of the press
reveals that on only one occasion was
this magic of the ‘transformative inves-
tors’ recognised for what it was: classic
corporate raiding. On March 13 2004,
Morgunblaðið argued that there were
eerie similarities between the American
leveraged takeover boom of the 1980s,
fuelled by junk bonds, and the activi-
ties of the transformative investors of
Iceland. Morgunblaðið warned that the
end result of the leveraged takeovers
in the US had been disastrous: “Peo-
ple lost their jobs and the companies
in question were left in ruins, while a
handful of financiers made off with
princely sums.”
Whatever the reason, people were
unwilling to admit that what the trans-
formative investors were really doing
was taking sound, publicly held compa-
nies, and transforming them into highly
leveraged investment firms that might
topple if asset prices fell. And while this
process did “breathe life” into the stock
market, as Björgólfur Guðmundsson
had talked about, it would be more apt
to say that it puffed up a massive asset
bubble.
Then, when the bubble had inflated
asset prices too much—when targets
for leveraged buyouts had disappeared,
and the supply of firms ripe for corpo-
rate raids had dried up—the transfor-
mative investors became ‘Corporate
Vikings’, using their investment com-
panies for more leveraged acquisitions.
This time abroad.
This, then, was the historical role of
the transformative investor turned ‘Cor-
porate Viking’: Transforming the Icelan-
dic economy into one giant hedge fund!
It is perhaps fitting that the ‘trans-
formative investors’ became known as
‘Corporate Vikings’. While Icelanders
have a romanticized vision of Vikings as
explorers, traders and poets, others are
more likely to see for what they were:
marauding barbarians who had no re-
spect for the law, property or life. Their
primary occupation was pillage, pure
and simple. If the ‘Corporate Vikings’
were 21st century incarnations of these
heroes of the Sagas, it stands to reason
that they, too, took to plundering and
looting.
Business | Corporate Vikings
MAGNúS SvEINN HELGASON
The ‘Corporate vikings’:
Robber Barons And Corporate Raiders
Magnús Sveinn Helgason is a historian. He
most recently authored addendum five to
the SIC report, and is currently working on a
book on financial bubbles.
1. Banksters Lárus Welding and Bjarni
Ármannsson 2. Business Entrepreneurs
jón Ásgeir jóhannesson and jóhannes
jónsson 3. yacht Couple Björgólfur Thor
Björgólfsson and Kristín Ólafsdóttir 4.
Billionaires Björgólfur Guðmundsson, 50
Cent and Björgólfur Thor Björgólfsson at
Thor's birthday party in jamaica 2007.