Why Did Prosolvia enter in Bankruptcy?
The new Board and Management (which was selected by the Government Controlled investment group Industrifonden) filed for bankruptcy in December 28 1998 after Prosolvia’s main shareholder, Government Controlled investment group Industrifonden, refused to provide the promised funding for the company.
At this point Prosolvia’s new management had no alternatives as they had interrupted the aggressive cost cutting measures as well as the back up partnership alternatives initiated by the former management.
The is because Industrifonden in October 1998 (when Industrifonden appointed a new management and their own CEO) declared to the management, shareholders and customers that Industrifonden is a long term stable key owner and that Industrifonden is committed to Prosolvia’s financially support and future development. Reassured by this the new management interrupted the aggressive cost cutting measures as well as back up partnership alternatives initiated by the former management.
Why did Industrifonden refuse to provide the promised funding to the company?
Because, the Swedish government representative in Industrifonden’s Board Of Directors kanslirådet Lars Häggmark, formally requested in writing through a note in the Board meeting protocol (the 15 November 1998) that Industrifonden shall reduce its Investment in Prosolvia (Lars Häggmark gjorde en protokollsanteckning där han betonade vikten av att försöka minska ägarandelen i Prosolvia),
The Industrifonden CEO, Mr Lars Öjefors, see picture felt that he had no option other that to follow this formal request as the Government (being ultimately the Owner of IF) request was “Vägledande”. Practically the Government exercised their Veto to any further investments in Prosolvia.
Lars Häggmark, formal notification was officially motivated by the realization that the Industrifonden investment was potentially breaking with the rules of their government founded Charter. Industrifonden was simply not allowed to become Prosolvia’s main shareholder and the Industrifonden CEO was not aware of this.
The underlying motivation was to minimize the political damage caused by the Media criticism and the ongoing Parliamentary inquiry concerning the Swedish Minister’s Anders Sundströms responsibility in Industrifonden’s participation in
Consequently, the real reason is that during October, November 1998 the financial newspaper Dagens Industri attacked the Government and Industrifonden accusing them that the Prosolvia’s take over broke the rules of their government founded Charter. They claimed that Industrifonden was set up to invest in small companies not in Public companies. This became a very sensitive matter as
Fueled by this new media storm the Swedish Political opposition initiated a Parliamentary inquiry lead by the Chairman of Konstitutions utskottet see the attached extensive reports and inquiry Swedish Government and Prosolvia This is the the Real reason for Prosolvia’s destiny.
How could Industrifondenbecome Prosolvia’s main shareholder?
Because a majority of Prosolvia’s Board lead by the Government Controlled investment group Industrifonden (who had been on Prosolvia’s board since 1995) voted in favor of accepting Industrifonden offer instead of choosing the alternative existing offers that the Former Management supported (Technomatix, Sigma etc).
Consequently, the Founders sold the majority of their Prosolvia shares, and the former CEO discontinued all his relations with Prosolvia and moved permanently to
Prosolvia’s New Board majority believed however in Industrifonden commitment (stated to the Board, in media and to all Prosolvia employees) to invest $35 Million to provide long term funding for growth which would minimize any lay off requirements.
This had not been the Founders preferred choice as several companies produced other offers to acquire/invest in Prosolvia including ABB, Techomatix, Sigma etc were preferable and they believed that the government controlled company Industrifonden was not the right partner for Prosolvia.
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The irony is that ABB, Techomatix, Sigma eventually become the owners of the Prosolvia's technologies but only after the bankruptcy.
Why did Prosolvia need a Partner & additional investments?
The large media storm caused by the incorrect allegations from Media (alleged irregularities related to accounting and questioned the ownership of the EON software) had a significant negative impact on Prosolvia’s customers.
Customers stopped existing orders, new prospects did not want to pursue, the cash flow became very weak and Prosolvia’s organization and Board was shaken.
This lead to that the external Board members in an aim to help the company and restore the positive image persuaded the companies CEO and (second-in-command) to resign.
This in spite that later in June 1998 Dagens Industri made an acknowledged that the Prosolvia accounting was in fact correct and that allegations about software ownership were incorrect. Unfortunately this acknowledgement came late
In addition in June 1998 a new management was put in place. This new management lacked the strength and entrepreneurial spirit that had made Prosolvia successful over 10 years; they focused on reorganizations and internal company activities. As a result the Prosolvia reported a loss for the first time in its 11 years history. The Founders had to lend the company some $3.5M to cover the cash short fall. The new management found it necessary to find an external business partner.