Cevian Capital buys more than 5 percent of Sweden's Ericsson

STOCKHOLM(Reuters) - Activist investor Cevian Capital has bought a more than 5 percent stake in Sweden’s Ericsson and said it sees significant potential in the struggling mobile telecom equipment maker.

Ericsson's employees stand inside their booth at Mobile World Congress in Barcelona, Spain, February 27, 2017. REUTERS/Eric Gaillard

Ericsson shares have fallen close to 40 percent in the past two years as the firm has been hit by a drop in spending by telecoms firms - with demand for next-generation 5G technology still years away - and weak emerging markets.

The firm, which reported an operating loss of 12.3 billion crowns ($1.41 billion) in the first quarter, also faces mounting competition from China’s Huawei and Finland’s Nokia.

Borje Ekholm, a Swedish business insider and veteran board member, took over as Ericsson’s CEO last October after a series of weak years.

“We see a significant potential in the company,” Cevian managing partner Christer Gardell told Reuters.

“It’s about hard work ahead. We support the main thrust of the plan that Borje has presented for the company, meaning an increased focus on the core business.”

Ekholm wants to focus the business on lucrative core networks while restoring profitability in its IT & Cloud unit. It is also exploring partnerships or a sale of all or part of its media unit.

“But plans are not enough to bring success, it is how the plans are implemented. And implementation has not been Ericsson’s strength as of late,” Gardell said.

Gardell also said he would join Ericsson’s nomination committee.

Ericsson’s U.S-listed depository receipts turned positive after the news and were up 1.9 percent by 1748 GMT.

Cevian, founded by Swedes Gardell and Lars Forberg, owns 168 million Ericsson B-shares, 5.6 percent of the B-shares outstanding, according to the filing from the U.S. Securities and Exchange Commission.

The filing also showed Cevian owns 113,510 A-shares in Ericsson, meaning it owns just over 5 percent of Ericsson’s total share capital, based on 3.33 billion outstanding Ericsson shares.

The activist investor holds large stakes in companies such as Swiss power transmission and industrial automation firm ABB, Swedish truck maker Volvo and German industrial group Thyssenkrupp.

Business Daily Dagens Industri, citing an unnamed source, said last week that Gardell had met Ericsson Chairman Leif Johansson, and added the reason was that Cevian was eyeing the firm.

(This version of the story fixes typo in paragraph 9)

Additional reporting by Johan Ahlander; Editing by Adrian Croft