Brexit ‘making UK more attractive’ to investors

Brexit is making the UK more attractive to investors by depressing valuations, according to Europe’s largest activist shareholder, flush with cash from the sector’s biggest-ever exit.

Cevian Capital, the Swedish pioneer of activism in Europe, sold its 8 per cent stake in truckmaker Volvo Group to Zhejiang Geely of China on Wednesday for €3.25 billion.

Christer Gardell, Cevian's co-founder, told the Financial Times that the fund would be looking to reinvest the €2 billion in profits it made either in new targets in northern Europe or in existing holdings that include companies such as steelmaker ThyssenKrupp, engineering group ABB and UK insurer RSA.

“We really like the UK market. We like the corporate governance, the rational behaviour of corporate boards. For us, Brexit is probably more a positive than a negative. Investors tend to exaggerate the threat,” Mr Gardell said.

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The Volvo Group stake sale is a vindication for the activist strategy of Cevian. Founded 15 years ago, Cevian tends to take a longer-term approach than many of the US activists, typically holding stakes of 5-20 per cent for five to seven years. It owned Volvo Group for 11 years and made much of its money in the past 18 months due to a turnaround initiated by a new chief executive.

Mr Gardell said of the deal to sell to Geely, which also owns all of Volvo Cars (itself spun out of Volvo Group in 1999): “It’s an important transaction for our business. It shows the value of a large minority position as well. It’s good to show we can do a transaction like this after so many years.”

Cevian estimates that its return from its Volvo Group stake is more than double the market return over the past 11 years. Volvo Group’s share price has more than doubled since the start of 2016, outpacing a rise of about 20 per cent for the main Stockholm stock index over the same period.

Mr Gardell said the deal gave Cevian a “war chest”. He added: “We are currently buying into one other company. The money will be invested. We have a good pipeline of existing opportunities and we will also consider whether to increase in current holdings.”

Cevian started off in the Nordic region, but has expanded to Germany, Switzerland, the UK and France. It has avoided southern Europe, arguing that it is not comfortable with corporate governance standards there.

Speculation about a possible reunion between Volvo Group and Volvo Cars under Geely is particularly ironic for Cevian, which has concentrated in recent years on breaking up conglomerates.

"The elimination of conglomerates is something that will happen with an enormous force over the next five years. The mothers of all conglomerates - Siemens and GE - are demerging. When those two companies are joining the trend, there is no way anyone else can defend conglomerate structures," Mr Gardell added. -Copyright The Financial Times Limited 2017