From Iceland — The 'Corporate Vikings'

The ‘Corporate Vikings’

Published July 21, 2010

The ‘Corporate Vikings’

The most iconic image of the Icelandic financial bubble was that of the ‘Corporate Viking’—the financier who engineered one daring takeover after another: One day buying a British supermarket chain, the next a Swedish real-estate holding company, then turning around to buy a Danish airline. No foreign asset was safe from the leveraged might of these marauding financiers.
The ‘Corporate Vikings’ were celebrated 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 capitalist spirits that drove Icelandic businessmen were in fact an expression of some ingrained Icelandic values welling up from deep within the national soul. This nationalistic theme makes repeated 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 legitimation: The ‘Corporate Viking’ was portrayed as an natural heir to the Icelandic historical tradition, in fact as the resurrector of a lost history. Finally, after a thousand years, Iceland was again home to ‘real’ Vikings who could strike fear into the hearts of foreigners.
Giving the tycoons and their deal making a place in the history of Iceland was all the more important because Iceland had historically been a very egalitarian 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 Iceland’s history, the tycoons were undeniably 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 industrial revolution was as much a history of farmers-turned-sailors-and fishermen—the history of a resilient working 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 characters: 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 Corporate Viking”
The ‘Corporate Viking’ image was neither the first nor the most obvious historical role for the tycoons to assume. For one, while their activities abroad have gained the greatest attention in the public mind, these were all predicated 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 feature titled “The most powerful Corporate 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 Vikings’ 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 ‘Corporate Vikings’ during the bubble’s crescendo in 2006–2008, most tycoons and investment companies defined themselves as “transformative investors” in the period between 2002–2006.
The transformative investor talked about finding “dead” or “idle” capital in companies, as well undervalued assets—which was referred to as searching for “hidden” assets. According to the prevailing discourse, the transformative 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 Iceland 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 overpriced Icelandic market.
Agents of change
The difference between the two terms is interesting. Unlike the ‘Corporate Viking’, 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 investor aimed to “dissolve complex webs of ownership among companies and increase their profitability,” as Björgólfur Guðmundsson, father and business associate of Björgólfur Thor Björgólfsson, put it in 2003. Björgólfur argued that this was all the more important because Icelandic companies were far too often concerned with protecting political 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 “shareholder value”—the idea that the overriding 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 corporations and the unhealthy mix of politics and business were seen by many as perhaps the worst ailments afflicting the Icelandic economy. This state of affairs was the result of the tightly regulated 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 cooperative 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’ (Kolkrabbinn), dominated by the shipping company turned conglomerate Eimskipafélagið, 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 investment company of the father-son team controlled, Íslandsbanki and the investment company Straumur announced the largest and most complex deal in the history of Icelandic business. Controlling 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 Landsbankinn and the Björgólfurs. Flugleiðir, 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 investment companies.
The shareholders of Eimskipafélagið and Flugleiðir, people who had bought shares in two of the oldest and presumably safest publicly held companies 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 investors’ 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 activities of the transformative investors of Iceland. Morgunblaðið warned that the end result of the leveraged takeovers in the US had been disastrous: “People 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 transformative investors were really doing was taking sound, publicly held companies, 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 corporate raids had dried up—the transformative investors became ‘Corporate Vikings’, using their investment companies for more leveraged acquisitions. This time abroad.
This, then, was the historical role of the transformative investor turned ‘Corporate Viking’: Transforming the Icelandic economy into one giant hedge fund!
It is perhaps fitting that the ‘transformative 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 respect 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.

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