This analysis was first published in SvD Näringsliv, in Swedish, on February 26th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Kinnevik is selling Tele2 for 13 billion kronor, but the investment company’s transformation sits uneasily with its history. The risks of the chosen path are enormous. Will the owners dare to continue?

Sharp pivots and high risk. These have been among Kinnevik’s hallmarks since the days of Jan Stenbeck. At first glance, today’s deal — selling Tele2 for 13 billion kronor — might look like more of the same.

But what is happening now is more than just a large transaction. It is a dismantling of the very foundations on which Kinnevik has historically operated. The question is: why?

That Tele2 would eventually be sold was widely expected. In January this year, Kinnevik’s chairman James Anderson told Affärsvärlden the following about a potential sale: “It would support the strategy that came about the year before I joined — to become a company that fully owns growth companies.”

Kinnevik is selling Tele2 to Freya Investissement — a company partly owned by the largest shareholder in Millicom, another former Kinnevik holding. The total price tag is 13 billion kronor.

For those looking to invest in growth companies — particularly in tech — the timing is arguably good. Valuations have come down sharply from 2021 onwards, and those with deep pockets can now invest on considerably better terms than they could for years.

Kinnevik already has a large balance sheet, even before the Tele2 deal. The most recent annual report listed cash of 7.9 billion kronor. That goes a long way — particularly given that Kinnevik has said it will focus more on a handful of existing holdings rather than spreading capital across many new ones.

In the press release — which is remarkably sparse with detail about what the new proceeds will actually be used for — there is one key sentence. CEO Georgi Ganev mentions in passing that the board will “review our capital structure in consultation with major shareholders.”

What do the owners actually want the company to do? There are two clear alternatives.

The first is to continue on the current path. Kinnevik invests heavily in digital growth companies and now buys itself a longer runway to do so. If the depressed valuations prove temporary, the position of such a company could be attractive. However, this carries very high risk — even for those who believe tech valuations will return to 2020 levels. Finding the right companies to back is a challenge that is not meaningfully helped by a rising tide lifting all boats. The current strategy has faced growing scrutiny, not least from the stock market, which has consistently traded the shares at a significant discount.

The second alternative is to return a large portion of the proceeds to shareholders. With today’s Tele2 sale, the transformation Kinnevik began in 2018 has been completed. The last piece of Jan Stenbeck’s creation has been dismantled. What remains is a portfolio of investments of uncertain value and an enormous cash pile — over 40 percent of net asset value is now cash. With that composition, it would be reasonable to return some of it to shareholders.

For the controlling shareholders — the Stenbeck and Klingspor families, among others — the risk profile of the new Kinnevik looks nothing like the company the patriarch Jan once built. Their appetite for the company going forward may not be entirely aligned. SvD’s documentary series Dynastin described this dynamic clearly.

Ganev told Dagens industri that “we are doing exactly what Jan Stenbeck did — continuing to redraw the map.” In the old Kinnevik, high-risk ventures were indeed undertaken — but there was always a base layer of stability. Launching satellite television from England was done at the same time as packaging company Korsnäs was delivering predictable profits. Without Tele2, the cash flow is now cut off, making Kinnevik increasingly dependent on divesting companies or borrowing over the longer term.

The new Kinnevik, after today’s Tele2 deal, has nothing resembling that kind of stability. It is a company that is betting one hundred percent on its ability to create value through investments in internet companies. Since spinning out Zalando in 2018, that has been the company’s entire focus — but the results have largely failed to materialise. The share price is now substantially lower than it was when the new direction was adopted.

Even if the owners are satisfied with the strategy, they will likely be asking whether the company really needs all 13 billion kronor — on top of the 7.9 billion already held — to achieve its goals. Much points towards a substantial distribution and a materially smaller Kinnevik going forward.

Today’s deal marks the final transformation of one of Sweden’s most storied investment companies. Kinnevik will not be the same again. It now remains to be seen whether the owners want to try to rebuild it once more.