STOCKHOLM, May 31 (Reuters) - Cevian Capital, Europe’s biggest activist investor, will press Ericsson to urgently implement its turnaround plans, managing partner Christer Gardell said on Wednesday, after the firm bought a stake in the struggling mobile telecom equipment maker.
Cevian now owns 168 million Ericsson B-shares and about 114,000 A-shares in Ericsson, according to a filing with the U.S. Securities and Exchange Commission on Tuesday, equivalent to just over 5 percent of Ericsson’s share capital.
News of the stakebuilding sent Ericsson shares up nearly 6 percent on Wednesday, with investors hoping that Cevian could help the Swedish telecom company’s drive to restore profitability by focusing on lucrative core networks.
Ericsson shares have fallen by a third in the past two years as the firm was hit by a drop in spending by telecoms firms and weak emerging markets.
In early May, Moody’s cut the group’s credit rating to junk, saying a strategy premised mainly on cost-cutting was not sustainable in the long term and could hurt the company’s competitiveness.
The firm, which reported an operating loss of 12.3 billion crowns ($1.41 billion) in the first quarter, also faces mounting competition from China’s Huawei and Finland’s Nokia.
“We have a long-term view, but when it comes to our patience we think that the improvements that need to be done must happen urgently. And in Ericsson’s case they should have been initiated yesterday,” Gardell, a co-founder of Cevian, told Reuters.
Gardell likened the situation at Ericsson to the state of truck maker Volvo, one of Cevian’s largest holdings, at the turn of the decade, with a lack of focus on the core business and profitability, and an unclear organisational structure.
Since then, Volvo has made sweeping changes to its top management and board, pushed through major cost savings, divested non-core businesses and significantly boosted the underlying profitability of its truck business.
Gardell said Cevian supported the main thrust of the improvement plan that new Ericsson Chief Executive Borje Ekholm, who was appointed last October, put forward in March.
“Ericsson appreciates open communications with its shareholders and values constructive input,” an Ericsson spokesman said in an e-mailed comment.
Ekholm has said his goal is to double the group’s operating margin to around 12 percent beyond 2018. His plans also include partnerships or a sale of all or part of its loss-making media unit.
“But to lay out a plan is one thing. Given Ericsson’s questionable history of implementation, that is where all efforts need to be put now,” Gardell said. (Reporting by Johannes Hellstrom, Helena Soderpalm and Olof Swahnberg; Editing by Adrian Croft)