From Piste to Crisis Room: How Sulzer CEO Beat Russia Sanctions
(Bloomberg) -- The boardroom of a Swiss supplier of pumps and compressors is an unlikely place to feel the full force of geopolitical tensions between the U.S. and Russia.
But that’s what Sulzer AG experienced a week ago, when President Donald Trump slapped sanctions on a slew of Russian oligarchs, catapulting the mid-sized industrial company into a crisis that would send its investors fleeing, lead banks to stop trading its stock and force it to buy shares from majority owner Renova Holding Ltd. to pull itself out of the thickening quagmire.
For Gregoire Poux-Guillaume, Sulzer’s 48-year-old chief executive officer, Friday April 6 started out at a leisurely pace. He had decided to take the day off to accompany his 16-year-old son, who had qualified for a French junior ski competition at Bonneval-sur-Arc in the French Alps. About 370 miles from Winterthur, the Swiss town where Sulzer is based, he got a call saying the U.S. measures targeted Russian billionaire Viktor Vekselberg and Renova as well as the companies in which they owned more than a 50 percent stake.
Poux-Guillaume stepped into crisis mode, leaving his son stranded in the mountains as he fielded endless phone calls and raced back to base. He worked over the weekend on a deal that would allow Vekselberg’s investment vehicle Renova to sell shares to Sulzer to get its stake below the 50 percent threshold and exempt the Swiss company from the sanctions. The deal was announced early the following Monday, before the market opened.
“It wasn’t a plan we pulled out of a drawer,” Poux-Guillaume said in an interview. “We never thought for a second that Viktor Vekselberg would end up on a sanctions list. We had to come up with this plan over the weekend.”
The hours and days that ensued saw investors fleeing the stock, wiping out as much as 25 percent of its market value. The situation became critical on April 10 amid reports that Switzerland’s two largest banks, UBS Group AG and Credit Suisse Group AG, had stopped trading the shares.
Credit Suisse and UBS weren’t isolated cases, the CEO said. “There were lots of financial institutions that either had suspended trading of the shares or had considered it.”
A few banks had moved even before Credit Suisse and UBS, Poux-Guillaume said, declining to name them. “People are focused on compliance and they try to be on the side of safety,” he said.
Sulzer wasn’t the only company sucked into the Trump vortex. Other traded Swiss stocks -- OC Oerlikon Corp., Schmolz + Bickenbach AG and Zueblin Immobilien Holding AG -- slumped as a result of the sanctions, even though Vekselberg’s holdings in these were well below 50 percent.
Switzerland has long been open to foreign investments in its companies but Sulzer’s predicament may be a warning shot for investors, says Eleanor Taylor Jolidon, who manages $3 billion in shares, including Sulzer, at Union Bancaire Privee in Geneva.
“Anybody who has ever bought into Sulzer has been concerned about the shareholding structure, regardless of the nationality,” Taylor Jolidon said in an interview in Geneva. “Does it make you think about majority shareholders in Switzerland more seriously going forward? Yes, probably. You are going to be more cautious about who owns what, or how.”
Even though Sulzer and Renova reached the share transfer deal over the weekend, they had warned it would be completed during the week. That meant Sulzer’s company’s assets were frozen in the U.S. and the company was no longer able to procure new business. It was still permitted to keep paying its 2,400 employees in the U.S. and execute contracts signed before the sanctions hit.
Relief came at 10:30pm on April 11, when Sulzer got word that the U.S. Treasury’s Office of Foreign Assets Control, or OFAC, had lifted sanctions on the company.
Poux-Guillaume and his teams worked throughout the night with the company’s banks to ensure the lenders had read the license and executed the deal with Renova. By 6:30 a.m. on April 13, the deck was cleared. Sulzer communicated the outcome to the market and the shares began to recover.
“The way the company reacted was sensible and quick, fortunately,” Taylor Jolidon said. “It was a well-constructed deal that went through OFAC faster than expected.”
The events still don’t bode well for Sulzer, she said. Some 23 percent of Sulzer’s revenue comes from the U.S. “It’s a lot.” Taylor Jolidon said. “Will they lose business in the U.S.? Possibly.”
Armin Rechberger, an analyst at Zuercher Kantonalbank, agrees.
“Clients may be more cautious on the stock going forward,” he said in a phone interview.
Sulzer will be giving more details on the disruption to its business on April 19, when it publishes its order intake for the first quarter.
“The speed at which these things snowball is incredible,” said Poux-Guillaume, whose son had to make his way back home alone by train, hauling two pairs of skis and all his gear on the seven-hour journey. It was “his own minor experience of the impact of the sanctions,” he said.
©2018 Bloomberg L.P.