Kinnevik is planning to return its entire €5.5bn stake in online retailer Zalando to its shareholders, as Europe’s largest listed investor in technology companies moves into more fast-growing and unlisted start-ups.
The Swedish family-controlled group said on Wednesday that it wanted to distribute its 21 per cent holding, which makes it the biggest shareholder in Zalando, to Kinnevik’s investors.
“For Kinnevik, the distribution means an increased focus on the early growth portfolio in line with our strategic transformation . . . By distributing Zalando to our shareholders, the portfolio distribution becomes more balanced and unique, and we will have more than two-thirds of our capital invested in a diverse set of younger, high growth, increasingly private digital companies,” said Georgi Ganev, chief executive.
Kinnevik is in the midst of what it calls its “third pivot”, boosting its exposure to unlisted start-ups. It started by using the stable cash flows and dividends from pulp and paper to invest in telecoms and media in the 1990s, before moving into internet companies such as Zalando, Rocket Internet and Avito in the 2010s.
The Swedish group owned as much as 32 per cent of Zalando after its initial public offering in 2014 but has sold down its stake twice already, using the proceeds to invest in digital healthcare companies such as Livongo, VillageMD, and Cityblock. It said it had made an 8.6 times return on its SKr7.9bn ($950m) investment in the online fashion retailer, which is based in Germany and whose share price more than doubled last year.
Its investors will need to back the Zalando plan, though shareholders holding 50 per cent of the votes in Kinnevik have already offered their support.
The share of fast growth and unlisted businesses in Kinnevik’s portfolio will both almost double after the distribution. High-growth companies will jump from 37 per cent to 67 per cent of its assets while unlisted businesses will make up 27 per cent, up from 15 per cent.
Ganev told the Financial Times that this would make its portfolio “more unique”.
“The exposure you can get to these fast-growing assets is not really available to a publicly listed investment company. We want to be Europe’s leading listed growth investor. This really accelerates that.”
Kinnevik said its high-growth companies had a return of more than 100 per cent in 2020, thanks to investments in online food retailers such as Norway’s Kolonial and digital healthcare.
Ganev insisted that Kinnevik still believed in Zalando and that it was exiting from a “position of strength”. He added: “It can grow without us as the lead shareholder. Our shareholders can enjoy that growth on their own, and we can focus on the new companies and give birth to a new Zalando.”
Zalando said on Wednesday that it welcomed the move. “We are very grateful for Kinnevik’s support,” said the retailer’s co-chief executive Rubin Ritter, adding that “granting Kinnevik shareholders direct exposure to Zalando is a logical next step”.
Since the 2014 IPO, Zalando’s market capitalisation has more than quadrupled to more than €20bn.
Anders Oscarsson, head of equities at Swedish pension fund AMF, backed the planned distribution, saying: “As investors in both Kinnevik and Zalando, we believe this transaction will benefit long-term shareholders of both companies.”
Additional reporting by Olaf Storbeck
* This article has been amended since original publication to clarify that Kinnevik is distributing its Zalando stake to its shareholders, rather than selling it