Default Claims Wipe 40% Off Firm That Once Towered Over Denmark

(Bloomberg) -- Investors just delivered a body blow to a company that was once Scandinavia’s biggest conglomerate.

On Monday, the last remnant of the East Asiatic Company of Denmark lost more than 40% of its market value after a key creditor said it breached debt covenants. The development represents an existential threat to EAC, now called Santa Fe Group A/S, and has left in tatters what was once an icon of corporate Denmark.

Gabriella Sahlman, an investment director at Proventus Capital Partners, told Bloomberg that the creditor thinks “there is a breach of covenants. We think it’s a very serious situation. What happens next depends on what Santa Fe does. It’s too early to speculate on what might happen.” Santa Fe, which now has its main office in London, says it disagrees. But investors dumped the stock on Monday, bringing this year’s decline to roughly 85%. The company is now worth just above $4 million.

Investors are wondering whether this is the final chapter in the life of a firm that was once bigger than A.P. Moller-Maersk. Founded in 1897 by shipbuilder H.N. Andersen, the East Asiatic Company built its business primarily on seafaring and trade. EAC’s success allowed its founder to rub shoulders with the monarchy, who showered him with the highest honors of the Danish realm. Young graduates once dreamed of a career at EAC and parents would proudly hand down family holdings of the company’s shares to their children.

But Andersen also had close ties to what would later become Danske Bank, which helped EAC sell shares to the public in 1897. Danske got into financial trouble in the 1920s, and almost collapsed. Its CEO at the time was then sent to jail in a scandal that also tainted Andersen’s reputation. The Danske CEO subsequently died in custody, pending trial, amid criminal charges that he’d misled the public.

To make matters worse, Andersen’s arch rival in the shipping industry, Arnold Peter Moller, stepped in around that time to become Danske’s chairman. Moller and Andersen remained bitter rivals, as did their two companies over the next half-century.

EAC vs Maersk:

A.P. Moller-Maersk would later surpass EAC to become Denmark’s biggest company. But in recent years, Maersk, as it’s now called, has shrunk considerably after selling off its energy assets to focus on transport. The company’s management has even used EAC as a cautionary tale to remind employees of how quickly corporate glory can evaporate.

The first major setback to EAC’s fortunes came between the world wars, when a wave of protectionism hampered trade. That prompted the company to rely less on shipping and trade, and more on establishing new production and service companies locally in Asia.

EAC’s conglomerate structure continued to bulge, and it moved into new industries ranging from meat processing to forestry in Asia, South America and Africa. At its peak in the 1970s, EAC employed about 40,000 people.

By the 1980s, the debt-fueled expansion that EAC had allowed itself was no longer sustainable and it started to sell off bits of its business. That process continued into the current century. By 2015, EAC changed its name to Santa Fe and its focus to relocation services.

The company hasn’t yet thrown in the towel. It says that Proventus’s allegation that it breached its debt covenants would constitute a default. But Santa Fe “does not recognize the existence of any breach.”

By Monday’s close in Copenhagen trading, shares in Santa Fe had lost 43%. When trading started Tuesday, the stock fell as much as 12%. According to newspaper Jyllands-Posten, the company’s board is due to meet later in the day.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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