[Federal Register Volume 60, Number 201 (Wednesday, October 18, 1995)]
[Notices]
[Pages 53947-53949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25822]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21419; International Series Release
No. 867; 812-8852]
Investor AB; Notice of Application
October 12, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANT: Investor AB (``Investor'').
RELEVANT ACT SECTION: Order requested under section 3(b)(2) of the Act.
SUMMARY OF APPLICATION: Applicant requests an order declaring that it
is primarily engaged in a business other than that of investing,
reinvesting, owning, holding, or trading in securities. Applicant is a
Swedish diversified industrial holding company.
FILING DATES: The application was filed on February 18, 1994, and was
amended on February 6, 1995, June 6, 1995, and October 4, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 6, 1995
and should be accompanied by proof of service on applicants, in the
form of an affidavit, or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issue contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, S-10332, Stockholm, Sweden; or c/o Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017, Attn: Pierre
de Saint Phalle, Esq.
FOR FURTHER INFORMATION CONTACT: Sarah A. Wagman, Staff Attorney, at
(202) 942-0654, or C. David Messman, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUMMARY INFORMATION: The following is a summary of the application. The
complete application is available for a fee from the SEC's Public
Reference Branch.
Applicant's Representations
1. Investor is a diversified industrial holding company
incorporated in Sweden in 1916. Investor's founders and principal
shareholders are the Wallenberg family and foundations, which together
control approximately 40% of the outstanding voting securities of
Investor. Investor was established to hold the equity interests of a
predecessor of Skandinaviska Enskilda Banken (``SEB'') in response to
proposed Swedish legislation to prohibit Swedish banks from having
equity holdings. In 1946, Investor's sister company Forvaltnings AB
Providentia (``Providentia'') was formed to hold equity interests that
SEB had acquired subsequent to 1916. From their inception, the goal of
both Investor and Providentia has been to maintain, acting together, a
controlling equity interest in a core group of companies. Historically,
Investor and Providentia have tended to consolidate their interest in
fewer corporations in order to maintain or increase their equity
interest in their core holdings. The core holdings of Investor and
Providentia tended to be substantially similar and the companies were
characterized by interlocking boards of directors and common officers.
In 1991, Investor and Providentia acquired all of the outstanding
securities of Saab-Scania, an engineering, manufacturing, and
technology company, further defining Investor as an industrial holding
company. As a result of this restructuring, Investor acquired all of
the outstanding securities of Providentia.
2. Investor's holdings include companies in the industrial,
engineering, banking and finance, pharmaceutical, and forestry sectors.
Investor owns a controlling interest in, among other companies, six
industrial companies (Incentive, Electrolux, SKF, Astra, STORA, and
Atlas Copco) which represent its core holdings. Investor has maintained
a long association and involvement in each of these six companies. In
addition, Investor holds all of the outstanding equity securities of
Saab AB (``Saab'') and AB (``Scania''), companies which were created
from the split of Saab-Scania AB on May 16, 1995.
3. Four of the six industrial companies Investor controls,
Incentive, Atlas Copco, SKF, and Electrolux, are classified in Sweden
as ``engineering companies'' because they manufacture engineering
products (the ``Engineering Companies''). Of the two other controlled
industrial companies, Astra is a pharmaceutical company, and STORA is a
forestry company. As of June 30, 1995, Investor directly owned 36% of
the outstanding voting securities of Incentive, 30% of the outstanding
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voting securities of SKF, and 45% of the outstanding voting securities
of Electrolux, thus exercising control over these companies within the
meaning of section 2(a)(9) of the Act. As well, the SEC has determined
that Investor also controls Atlas Copco, notwithstanding the fact that
Investor owns less than 25% of the outstanding voting shares of Atlas
Copco.\1\
\1\Investor AB, Investment Company Act Release Nos. 18989 (Sept.
30, 1992) (notice) and 19056 (Oct. 27, 1992) (order). The order also
found that Investor controlled Astra and STORA, notwithstanding the
fact that Investor owned less than 25% of the outstanding voting
securities of each company.
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4. Incentive's businesses involve manufacturing in the
transportation, environment, materials handling, medical technology,
development, and power industries. Incentive is currently carrying out
a comprehensive restructuring program to become strictly an
engineering-oriented manufacturing company. Incentive currently owns
24.5% of the capital stock and 32.8% of the voting power of ASEA, a
global electrical engineering group. Three members of Investor's board
of governors serve on Incentive's board of directors, including
Investor's Vice Chairman, who serves as Incentive's Chairman.
5. Atlas Copco is an international contractor and manufacturer of
compressors, mining and contracting equipment, and industrial
production equipment. Four members of Investor's board of directors
serve on Atlas Copco's board of directors, including Investor's
Chairman, Vice Chairman, and a director, who serve, respectively, as
the Chairman and two Vice Chairman of Atlas Copco. Investor's
management was instrumental in implementing a comprehensive
restructuring program in Atlas Copco's contracting and mining
technology business, as well as in Atlas Copco's acquisitions of
various companies, including Secoroc and AEG Electrowerkzeuge.
6. SKF is the world's largest manufacturer of rolling bearings,
with rolling bearings and related products accounting for slightly more
than 90% of sales. Three members of Investor's board of directors serve
on SKF's board of directors, including two of investor's directors who
serve, respectively, as Chairman and President and CEO of SKF.
7. Electrolux is one of the world's leading manufacturers of
household appliances. Electrolux manufacturers vacuum cleaners,
absorption refrigerators for recreational vehicles and hotel rooms,
institutional kitchen equipment, industrial laundry appliances, and
chain saws. Two of Investor's directors serve on the board of directors
of Electrolux, including Investor's Vice Chairman, who serves as the
Chairman of Electrolux.
8. The principal businesses conducted by Saab include the
manufacture of trucks, buses, and engines. The principal businesses
conducted by Scania include the manufacture of civil and military
aircraft, aircraft components, and defense products, and the creation
and production of space, industry, automotive, and traffic
applications.\2\ In addition, Saab participates in the manufacture of
passenger cars through its 50% ownership interest in Saab Automobile
AB.\3\
\2\Saab consists of five product companies: Saab Military
Aircraft, Saab Dynamics, Saab Training Systems, Saab Aircraft, and
Saab Combitech.
\3\Formally, Saab remains the owner of 50% of Saab Automobile
AB. It is expected, however, that this interest will be transferred
to Investor or another Investor subsidiary.
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9. Investor expects to sell a portion of its equity ownership in
Scania in the near future. The exact amount to be sold has not been
determined, but Investor currently anticipates that it will retain at
least 50% of the voting shares of Scania at the conclusion of any
initial public offering and that, in all events, Investor would own
more than 25% of the voting stock of Scania at the conclusion of any
series of offerings, so that Investor would continue to control Scania
for purposes of the Act. Investor intends to repay debt with the
proceeds of any such offering.
10. Presently, Investor is excepted from the definition of
investment company by section 3(c)(1) of the Act, since Investor
currently has fewer than 100 U.S. investors.\4\ Investor is considering
the possibility of issuing securities in the United States, however, at
which time section 3(c)(1) would no longer be an available exception.
Although Investor believes that it is primarily engaged in the business
of automobile and truck, aerospace and technological systems
manufacturing, and other engineering industries through its wholly-
owned subsidiaries and the Engineering Companies, applicant requests an
order so that it may make its U.S. offering without the uncertainties
created by the possibility that applicant might be considered an
investment company.
\4\See Touche Remnant & Co. (pub. avail. July 27, 1984).
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Applicant's Legal Analysis
1. Applicant requests an order under section 3(b)(2) of the Act
declaring that it is primarily engaged in a business other than that of
investment, reinvesting, owning, holding, or trading in securities, and
therefore is not an investment company as defined in the Act.
2. Under section 3(a)(3) of the Act, an issuer is an investment
company if it is engaged or proposes to engage in the business of
investment, reinvesting, owning, holding, or trading in securities, and
owns or proposes to acquire investment securities having a value in
excess of 40% of the value of the issuer's total assets (excluding
government securities and cash items) on an unconsolidated basis.
Investment securities include all securities except Government
securities, securities issued by employees' securities companies, and
securities issued by majority-owned subsidiaries of the owner that are
not investment companies.
3. Applicant states that it is primarily engaged in the business of
automobile and truck, aerospace and technological systems
manufacturing, and other engineering industries through active
participation in its wholly-owned subsidiaries, Saab and Scania, and
its controlled Engineering Companies, Atlas Copco, Electrolux,
Incentive, and SKF. Applicant states that it is not in the business of
investing, reinvesting, or trading in securities. Applicant, however,
could be considered an investment company under section 3(a)(3) since,
at June 30, 1995, 69% of Investor's assets on an unconsolidated basis
were composed of investment securities.
4. Rule 3a-1 under the Act provides, in relevant part, that
notwithstanding section 3(a)(3), an issuer is not considered an
investment company under the Act if no more than 45% of the value of
its total assets and no more than 45% of its net income is derived from
securities other than government securities, securities issued by
employee's securities companies, securities issued by majority-owned
subsidiaries that are not investment companies, and securities issued
by companies primarily controlled by the issuer that are engaged in
non-investment businesses.
5. Presently, Investor could rely on rule 3a-1 to except it from
the definition of investment company in section 3(a)(3).\5\ The
businesses of Investor's
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controlled companies are highly cyclical, however. As a result,
Investor is concerned that negative financial results of some of
Investor's industrial holdings might make it impossible for Investor to
rely on rule 3a-1 in the future. For the same reason, Investor believes
that it could not rely on rule 3a-2 under the Act, which excepts
certain transient investment companies for a maximum of one year, since
an economic downturn affecting Investor's industrial holdings could
last more than one year. For these reasons, applicant requests an order
under section 3(b)(2) declaring that it is not an investment company.
\5\Under section 3(a)(3), the determination of the value of an
issuer's investment securities excludes only government securities,
securities issued by employees' securities companies, and securities
issued by majority-owned subsidiaries of the owner which are not
investment companies. Under rule 3a-1, securities issued by non-
investment companies controlled primarily by the issuer through
which the issuer engages in non-investment company business are
additionally excluded. As well, for purposes of section 3(a)(3),
wholly-owned subsidiaries are considered on an unconsolidated basis,
while for purposes of rule 3a-1 they are consolidated with the
issuer's directly-held assets.
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6. Section 3(b)(2) provides that the SEC may find that an issuer is
primarily engaged in a business or businesses other than that of
investing, reinvesting, owning, holding, or trading in securities
either directly, through majority-owned subsidiaries, or through
controlled companies conducting similar types of businesses.\6\ In
determining the primary business in which a company is engaged, the SEC
considers, among other factors: (a) The issuer's historical
development, (b) the issuer's public representations of policy, (c) the
activities of the issuer's officers and directors, (d) the nature of
the issuer's present assets, and (e) the sources of the issuer's
present income.\7\ Investor represents that directly, through its
wholly-owned subsidiaries Saab and Scania, and through the Engineering
Companies, it is primarily engaged in the business of automobile and
truck, aerospace and technological systems manufacturing, and other
engineering industries.
\6\The requirement that companies be conducting similar types of
businesses applies only to controlled companies, and not to
majority-owned subsidiaries. In the Matter of American Manufacturing
Company, Inc. 41 S.E.C. 415, 419 (1963).
\7\Tonopah Mining Company of Nevada, 26 S.E.C. 426 (1946).
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a. Historical Development: Investor has, over the decades,
concentrated its ownership interest in a core group of companies in
order to exercise its control and influence. This has resulted in
ownership of a relatively small group of companies, because it has
often been necessary for Investor to sell off less central core
holdings in order to maintain or increase its equity interest in its
remaining holdings.
b. Public Representations: Investor represents its policy as one of
concentrated, long-term ownership of its core holdings, including
active participation on the boards of directors of these companies.
Although in the past Investor has sometimes translated its status as a
Swedish ``investment bolag'' as ``investment company'' in the English
translation of its annual report, ``investment bolag'' does not have
the significance under Swedish law that ``investment company'' does
under the Act. Under Swedish law,diversified holding companies may
elect to be treated as ``investment bolags'' in order to enjoy certain
tax advantages. An ``investment bolag,'' however, is distinct from a
Swedish ``aktiefound,'' or mutual fund, which corresponds more closely
to the definition of investment company under the Act. An ``aktifond''
is subject to percentage limitations on its ownership of any one
issuer, limitations which Investors exceeds with respect to many of its
holdings. Beginning with its 1991 annual report, Investor described it
self as a diversified industrial holding company. From 1994 onwards,
Investor intends to describe itself as an industrial investment
corporation, a term it believes will have more meaning to its Swedish
shareholders.
c. Activities of Officers and Directors: The officers and directors
of Investor have extensive experience in finance and industry. Several
of Investor's officers and directors serve, or have served, as chief
executive officers and directors of the Engineering Companies.
Investor's officers and directors play a very active role in setting
the general policies of these companies, as well as providing support
to management. Investor is committed to managing these companies over
the long-term. Over the years, members of Investor's board of directors
and management have been actively involved in restructuring these
companies in order to meet changing market conditions.
d. Nature of Assets: As of June 30, 1995, Saab and Scania accounted
for approximately 46.6% of the value of Investor's total assets, on a
consolidated basis. As of June 30, 1995, the Engineering Companies
accounted for approximately 12.1% of the value of Investor's total
assets, on a consolidated basis, with each company accounting for
approximately the following percentages of Investor's total assets:
Incentive 6.0%, Atlas Copco 2.9%, SKF 2.6%, and Electrolux 0.6%. In
addition, as of June 30, 1995, Investor held land and real estate used
in connection with its manufacturing businesses constituting
approximately 1.8% of Investor's total assets. Thus, as of June 30,
1995, Investor's combined interests in Saab, Scania, the Engineering
Companies, and its land and real estate holdings represented
approximately 60.5% of the value of Investor's total assets.
e. Sources of Income: For the six months ending June 30, 1995,
Investor obtained approximately 75.8% of its net income after taxes
from Saab and Scania. For this same period, Investor obtained
approximately 17.0% of its net income after taxes from the Engineering
Companies, with each company accounting for approximately the following
percentages of net income: Incentive 6.8%, Atlas Copco 4.0%, SKF 5.2%,
and Electrolux 1.0%. After accounting for operating losses, interest
paid, and a tax adjustment, for the six months ending June 30, 1995,
approximately 62.9% of Investor's net income after taxes was derived
from revenues from Investor's combined interests in Saab, Scania, and
the Engineering Companies.
7. For the reasons discussed above, Investor believes that the SEC
should find that it is primarily engaged in a business other than that
of investing, reinvesting, owning, holding, or trading in securities.
Investor states that it is in the business of automobile and truck,
aerospace and technological systems manufacturing, and other
engineering industries through its wholly-owned subsidiaries and
controlled Engineering Companies, and that it has a long-term interest
in actively controlling these companies. Thus, Investor asserts that it
is not the type of company which the Act was meant to regulate.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-25822 Filed 10-17-95; 8:45 am]
BILLING CODE 8010-01-M