Bocconi University - Business History Cases

Ivar Kreuger: Chasing monopolies

IVAR KREUGER: CHASING MONOPOLIES

1. Sweden and the International Match industry before World War I

Since the late nineteenth century and except for a brief time at the beginning of WWI,
Sweden was the world’s leading exporter of matches, before Japan took the lead in
supplying Asian markets in the interwar period. Sweden had pioneered match-producing
technologies, for example the invention of the “safety match” in 1844 which led to production
of modern matchbox; and the invention of the matchmaking machine in 1872. By 1900 every
match manufacturing step, from splint sorting, leveling, and dipping to packing the finished
matches in a box, was mechanized. About 85% of Sweden’s match production was
exported, 40% of this to Great Britain. Between 1870 and 1900, Sweden’s match exports
grew from about 2,500 to 17,100 tons. By 1914, Sweden was exporting 40,000 tons of
matches each year, more than any other country.
Although highly mechanized, the match production was uncomplicated process and thus
required relatively modest capital investments, shaping it as an industry with low barriers to
entry. Numerous countries around the world produced matches, mainly for domestic
consumption but also for export. Before WWI, Sweden’s main competitors in international
markets where Austria and Belgium, which had well-developed match industries. The Soviet
Union became an important match producer in the postwar period. In the late 1920s, the
rest of Europe and North America (United States and Canada) accounted for about 50% of
the global match production.
The match industry turned as an easy source of tax revenue for many national governments,
thus protecting domestic industries through prohibitive customs duties or creating
government-controlled monopolies (starting with France in 1872). Thus, smaller match
companies around the world were pressured to consolidate, by limited opportunities for
exports, together with the industry overcapacity. Fewer and larger match companies
operating internationally facilitated the development of price cartels and other market
agreements limiting free trade.
At the start of the twentieth century, the match industry in Sweden was consolidating. In
1903, Jönköping och Vulcans Tändsticksfabriks AB (J&V), a new company resulting from
the merger of six of Sweden’s 15 match producers, was responsible for about 80% of the
country’s total match production, and strongly integrated vertically (purchase of chemical
distributors, forests property, and machine manufacturers in Sweden). J&V exports
accounted over 90% of its production, this prompted the firm to establish its own sales office
in London and thus to reduce dependency on British agents for sales in its largest market.
In 1910, J&V became Sweden’s first multinational match firm, easily dominating Sweden’s
match industry until 1913. During that year, the formation of AB Förenade Svenska
Tändsticksfabriker (Förenade) took place with the joining of 12 factories from the country’s
remaining independent match producers. Förenade was valued at less than one-third of
J&V’s worth and accounted for just 20% of Sweden’s total match production. However, the
new match company would soon overtake its domestic rival under the leadership of the local
entrepreneur Ivar Kreuger.

1
Bocconi University - Business History Cases
Ivar Kreuger: Chasing monopolies
2. Ivar Krueger, Genius and Swindler
Ivar Kreuger was born on March 2nd, 1880 in Kalmar, on Sweden’s southwest coast, from
an enterprising family who owned two small match factories nearby. He died on March 12th,
1932, shooting himself through his heart in his Paris apartment. His suicide note read: “I
have made such a mess of things that I believe this to be the most satisfactory solution for
everyone concerned”.
At the time of his death, he was leading a $600 million globe-spanning organization, the
largest firm of which, Swedish Match, was one of the earliest companies with a global reach
in the contemporary age. It came to control 40% of the world’s match production, owning
manufacturing operations in 36 countries, and having monopolies in 16 countries. Kreuger’s
fortune comprised a very diverse range of asset, including factories, forests and mines, real
estate (e.g., luxury residences all over the world), and even film production companies.
Since 1927, Kreuger’s holding company lent over $300 million to governments in Europe,
Latin America and Asia in exchange for national match monopolies. By 1929, Kreuger
companies’ stocks and bonds were the most widely held securities in the US and around
the world. In 1932, three years into great depression Kreuger was dead, and his holding
company bankrupt. Forensics auditing unraveled a large pyramid scheme lying on bloated
accounts, with fictitious assets, hiding the truth in a warren of over 400 subsidiary
companies. Swedish Match deficits exceeded Sweden’s national debt.
John Maynard Keynes referred to Kreuger as “maybe the greatest financial intelligence of
his time”, praising him for having “deemed it his task a mid post-war chaos to create a canal
between the countries with abundance of capital and those in bitter need of it”. Harsher than
Keynes, John Kenneth Galbraith called Kreuger as “by all odds, the biggest thief in the long
history of larceny - a man who could think of embezzlement in terms of hundreds of millions.”
However, matches were not the first industry that attracted Kreuger.
At the age of 20, soon after his graduation (in mechanical engineering at the Royal Institute
of Technology in Stockholm) as the young educated Swedes’ tradition required, Kreuger left
his home country to gain experience abroad. Since 1900, when he first moved to New York,
Kreuger spent the following 8 years travelling primarily through the United States, and then
across Europe. During that time, he mainly managed to work as an engineer in the steel
construction industry, but he also experienced different jobs, always seeking for better
opportunities. In Chicago (1900-1901), he found employment in a real estate firm,
specialized in selling lots to European immigrants. In 1903, he worked full time as the
manager of a restaurant he opened with a friend near the center of Johannesburg, but the
venture turned only small profits. However, while in South Africa, Kreuger made an easy
$7,300 (about $211,00 in 2022) endeavoring gold speculation. By 1907, Ivar Kreuger was
appointed manager and vice president of New York’s Consolidated Engineering Company,
where he learned about the latest building techniques, using reinforced concrete.
In 1908 he returned to Sweden and founded a construction firm in partnership with
entrepreneur and construction engineer Paul Toll basing on the knowledge he absorbed
during the American apprenticeship. Kreuger & Toll could complete building projects more
quickly and cheaply than any competitor, thus soon establishing as a leading construction
firm in Sweden, and shortly after becoming the first construction firm in Europe to guarantee
to finish projects by a fixed date. In 1911, the company was incorporated with a stock capital
of 1 million Swedish kronor (about US$250,000). Addressing the financial need of his
business, Kreuger began establishing contacts in Swedish banking community. That was
the occasion on which he encountered one of his future chef financial advisor, Oscar
2
Bocconi University - Business History Cases
Ivar Kreuger: Chasing monopolies
Rydbeck, manager of the Stockholm branch of Skandinaviska Banken. Rydbeck put forward
the initiative to increase authorizes shares in Krueger’s father’s two match factories, for the
purpose to use them as collateral in other match factories acquisitions.
3. Building a Match Empire
With the support and two of Sweden’s largest banks – Stockholms Enskilda Bank (owned
by the powerful Swedish Wallenberg family) and AB Stockholms Handelsbank
(Handelsbanken) – Kreuger undertook a new match venture called Förenade in 1913.
Despite the match industry did not have a great appeal in terms of potential or opportunity,
on the surface, Kreuger had already envisioned a plan “to consolidate the match businesses
of the world under one control.”

In 1913, Krueger combined many of Sweden’s independent match factories into the
company Förenade, paying the owners with a combination of shares in the new company
and cash from the banks’ purchase of shares. Kreuger’s expansion strategy mainly relied
on mergers and acquisitions, as well as forming joint ventures or cartels with local firms.
Kreuger’s takeover of Japan’s match industry – the only serious non-European competitor
– was among the last in this early expansion stage. In rare cases, such as in India, Kreuger
resorted to building his own factories. He often financed acquisition through new share
issues in his companies, as he did with Förenade, tripling the firm’s share capital in three
years, to 18 million kronor in 1917 (equivalent to US$115 millions in 2022). Nonetheless, he
frequently operated in underhanded ways, like hiring local agents to quietly purchase match
companies on his behalf. In 1914, in reaction of Norwegian match company’s violation of a
price agreement for the British market, he surreptitiously purchased the majority interest in
the firm. A well as he did with a Finnish match company that had started exporting low-
priced matches to Sweden and Great Britain.
In 1917, Kreuger and the bankers behind Förenade’s rapid growth pushed through final
negotiations for the merger of J&V and Förenade into Svenska Tändsticks Aktiebolaget (The
Swedish Match Company). Swedish Match was not directly involved in production, in fact it
operated as a holding and sales company. Förenade and J&V continued to exist as separate
companies. The main purpose of such a merger was to rationalize sales, making them more
efficient. Kreuger consolidated the group’s several overseas trade companies into just three
centrally managed sales groups (for Sweden, Great Britain, and all non-British overseas
markets). New local sales offices opened in several cities, gathering intelligence about
markets and competitors in the region, and passing the information on to the sales groups
and the central office in Sweden. The core goal of Kreuger’s international strategy was to
expand and protect the Swedish-made matches export, while reducing overproduction in
other parts of the world. In such a way that interests of Swedish Match foreign companies
had always been secondary to those of the Swedish ones, J&V and Förenade. Once a new
dominant position was acquired within a market, Kreuger made sure modernize and
streamline production methods, turning around local industry to the extent their output did
not compete with Swedish exports.
Although it was one of the few European match businesses that remained profitable during
WWI, Swedish Match had still to face international market dislocations and financial
uncertainties soon after its formation. Nonetheless, in the postwar period the international
match industry was fragmented, and even established companies were often
underfinanced. Kreuger easily acquired these firms, especially those operating in war-torn
European countries or countries with a low-value currency. Kreuger approached factory
owners with a simple offer: “sell to him or be ruined.” Indeed, after acquiring one or two local
3
Bocconi University - Business History Cases
Ivar Kreuger: Chasing monopolies
companies, he was able to pressure the remaining local competitors to sell to him as well,
often through threats or deceit. Between 1919 and 1922, Kreuger made similar incursions
into the match industries of Austria, Hungary, Denmark, Holland, and Switzerland. In other
cases, he initially collaborated with the largest local competitor in order to gain control of the
marked. For example, in Belgium, where the match industry had consolidated into one large
company (UNAL) already before the war. After combining all the remaining independent
Belgian firms into a single company (1920) and a period of collaboration, Kreuger merged
with UNAL in 1925 gaining control over country’s match industry. During the post war period,
due to the economic crisis, Kreuger also managed to buy assets cheaply. This way, he
created also a large real estate business, starting from Germany and then elsewhere, which
increased Kreuger’s already diversified sources of revenue (he still retained the ownership
of Kreuger & Toll).
However, the main financial source for Swedish Match’s international acquisitions was
“Match Syndicate”. Formed in 1919 by five major Swedish financial institutions, it provided
60 million kronor (about US$218 million in 2022) at Kreuger’s disposal. Förenade would
service the expensive loans during the three-year life of the syndicate, instead of Swedish
Match, that was to assume liability only after. The syndicate worked independently of
Swedish Match and in secret: few of Swedish Match’s directors even knew of its existence.
To mask his expansion strategy even from competitors, Kreuger carried out his acquisitions
with utmost secrecy, employing third parties to make inquiries and purchases on behalf of
Swedish Match without the party being acquired ever knowing of Kreuger’s involvement.
Most acquisitions appeared surreptitiously in Swedish Match’s accounts and public
statements as “sundry creditors”. All but a few of Kreuger’s most trusted associates
remained unaware about the extent of Kreuger’s international activities.

4. Kreuger and International Finance

In the early 1920s, economic depression struck, and just when Kreuger was about to reap
the rewards of his European match assets. In 1923, Swedish Match entered in a serious
liquidity crisis, due to decreasing sales and prices. Swedish Match’s debts to the Syndicate
were coming due, and the associate banks started claiming for an immediate return on their
investment. Kreuger went to global capital markets to repay his Swedish bank creditors,
though. He pioneered financial techniques that are still in practice today, including the use
of offshore finance. His most innovative financial strategy consisted in creating non-voting
“B shares” (one equaling one-thousand vote), as opposed to “A shares” (one equaling one
full vote). Offering “B shares” allowed him to raise funds in the London stock market without
violating a Swedish law prohibiting more than 20% foreign ownership of Swedish companies
in certain industries. Indeed, the law referred only to voting shares rather than to the
percentage of financial stake in the firm. Such an innovation allowed, in 1924, to double
Swedish Match share capital up to $47 million without diluting Kreuger’s control of the
company. By using “B shares”, Kreuger held a $600 million empire owning only 1% of the
total shares of his companies.

He was then able to finance a large-scale international expansion, and still maintain the
control necessary to execute his strategy operating in an independent and quiet way.
Moreover, the global post-war scenario in banking activities opened the door for Kreuger to
become an international financier, who could compete with investment banking giants such
as J.P. Morgan. In the 1920s, European countries were facing recession and their economy
was in ruin, emerging from the war as debtor-nations. Conversely, the United States,

4
Bocconi University - Business History Cases
Ivar Kreuger: Chasing monopolies
untouched by the physical destruction of the war, were experiencing a great economic
boom, lasting through most of the decade, and were emerging as the “lender of the world”.
In 1923, Kreuger formed the International Match Corporation (IMCO) in New York, as to
provide himself a vehicle for raising money in the United States. The company was
incorporated in Delaware to secure the greatest flexibility. He established several IMCO
subsidiary companies in Europe, where he transferred the Match Syndicate’s remaining
assets and the majority of Swedish Match’s international holdings (about $8 million). In
exchange, Swedish Match and the syndicate received $30 million in IMCO shares. Swedish
Match initially received a little over half of IMCO’s shares, becoming the company’s sole
owner years later. By 1933, through a series of bond issues – the very first, issued soon
after incorporation and worth $15 million, was oversubscribed on the same day of issue –
Kreuger raised nearly $150 million from U.S. investors. Indeed, IMCO appeared extremely
profitable: it used parts of the capital raised to distributed annual dividends of 20%, which
kept the stock value up. As a result, Kreuger had been able to raise funds in the US and
elsewhere in the world. In addition to that, he offered brokerages and confidential discounts.
Moreover, the close alliance he had with his home-country banks reassured the majority of
US investment bankers about the legitimacy of his business. But not everyone trusted
Krueger, as J.P. Morgan and, in the latter days, the Wallenbergs (see below).
Beginning in 1925, Kreuger ventured into an entirely new kind of expansion strategy,
enabled by money raised in the bond markets. Kreuger had abundant capital that he was
willing to lend to needy governments in exchange for monopoly control of the national match
market. Poland was the first borrower in a long line of countries (including Greece, Latvia,
Yugoslavia, Hungary, Ecuador, and Peru). In 1927, France urgently needed a loan to
stabilize its currency, and J.P. Morgan – from whom France had borrowed $89 million three
years earlier – had refused to give any more funds before France paid its prior debt.
Morgan’s word stood for all of Wall Street. But not for Kreuger who lent $75 million to France
(even after the French legislature turned down his monopoly proposal). Kreuger’s loan
helped France to pay off Morgan’s higher-rate loan. Such a deal played relevant a role in
reorganizing the country’s finances at a critical time. In return, Swedish Match gained
exclusive rights to supply the French monopoly with raw materials and machinery, in addition
the right to import luxury matches into France). Through these kinds of deals, Kreuger
acquired an international reputation as a serious financier, being awarded France’s Grand
Cross of the Legion of Honor. By 1933, Kreuger had made a total of $387 million in state
loans, all financed through sales of securities in Swedish Match, IMCO, and Kreuger & Toll.
On October 24, 1929, stock prices on Wall Street collapsed. Though hit hard by the market
crash, Kreuger securities rebounded following the announcement of an increased dividend
on IMCO in the last quarter of 1929. For the next few years Kreuger continued to pay
generous interest and dividends with company capital to ride out this latest bump in the
economy. On October 26, 1929, Kreuger signed a deed for a $125 million loan to Germany,
which would have brough him a 50% ownership share in the state match company with
monopoly rights over production, import, and sales of matches in Germany for 32 years. The
loan helped Germany meet war reparation payments and stave off a domestic economic
crisis, while Kreuger achieved a new level of international stature for himself.
Indeed, at that time few anticipated a prolonged and severe downturn in production and
prices. As the Depression deepened, investments in new stock and bond issues almost
stopped. The Swedish matches export dropped (just above 200,000 cases by 1934) and
Kreuger found himself in severe liquidity problems. He needed to seek for new sources of

5
Bocconi University - Business History Cases
Ivar Kreuger: Chasing monopolies
cash to meet operating costs and investor obligations. First, Kreuger tried to capitalize on
his stature at home. He used $50 million in German bonds – belonging to IMCO – to back a
$30 million loan extension by Skandinaviska Banken. Kreuger kept those bonds in his
personal bank account, using them again to secure a second loan from another Swedish
bank. Still short of cash in March 1931, he forged Italian government bonds worth $142
million, presenting them as proof to bankers and his own accountants of having secured yet
another national monopoly, by claiming he got the bonds as collateral for a loan of the same
amount to Italy.
By December 1931, Kreuger began preparing for a shakeout by removing from his office
safe thousands of shares in several Swedish companies and giving them to his brother
Torsten. Then, he tried to sell his most valuable non-match assets, as a last-ditch effort to
save his sinking empire. Indeed, Kreuger had secretly purchased LM Ericsson shares,
gaining the control of the company by 1930. He was now approaching International
Telephone and Telegraph (IT&T) with a merger offer, willing to trade a majority stake in
Ericsson for a block of IT&T shares plus $11 million in cash. For the first time, Kreuger
agreed to an independent audit of one of his companies. Accounting investigations revealed
that he had taken over $7 million from Ericsson, replacing it with foreign government bonds
of lesser value. Any attempt to mollify the IT&T accountants was in vain (the audit company
was a J.P. Morgan’s one, and Morgan had never trusted him), on February 19, 1932, IT&T
cancelled the deal. Kreuger was then unable to make an overdue payment to four U.S.
banks.
In total despair, on February 23, Kreuger turned to the Swedish banks, threatening that
Swedish Match would be forced to suspend payments and go bankrupt, if $2 million was not
delivered that day. The Wallenbergs-owned bank (Stockholms Enskilda Bank) refused any
further loan extension, effectively dragging down Swedish Match. The Swedish central bank
had to provide a loan of two-thirds the cost necessary to keep Swedish Match afloat for a
few more, and the remaining one-third was made up by Skandinaviska Banken and
Handelsbanken, for one-sixth each. Kreuger’s European creditors set a meeting for April in
Germany. The loan granting condition was that Kreuger return to Europe from New York
immediately. When he arrived in Paris, as for encountering colleagues to prepare for the
creditors’ meeting, he learned that Swedish officials had discovered the Italian bonds during
a raid in his offices. Kreuger assured his associates that he would explain everything, but
just before the scheduled meeting in Paris, he took his own life. The stock markets reacted
violently to the news of Kreuger’s death. All Kreuger-linked stocks collapsed. IMCO sold a
record block of 673,000 shares in a single day, going bankrupt in subsequent months.
Subsequent auditing investigations revealed that Swedish Match deficits exceeded
Sweden’s national debt. All told, Kreuger was worth about $100,000, having as most
valuable personal assets some Rembrandt etchings and a Rolls Royce limousine. Claims
on his estate totaled $1.2 billion, about $98 million of which representing losses to U.S.
banks and investors.
Nonetheless, his legacy was solid. After Krueger’s death, Stockholms Enskilda Bank
reconstructed Swedish Match, remaining a well-established multinational company for the
following seventy years. Yet, the Wallenbergs’ bank had been owed 60 million of the 830
million kronor the Kreuger Group owed to Swedish commercial banks. As a result, the
already strong industrial interests of the family expanded considerably, and the Wallenbergs’
position as the largest Swedish business group finally consolidated.