CEO sees Alphabet-C IPO as a "perfect blueprint," will Klarna adopt dual-class shares?

Zhitong App has learned that Sebastian Siemiatkowski, the CEO of Klarna Bank AB, a pioneer in the "buy now, pay later" model from Sweden, is drawing inspiration from the IPO case of Alphabet-C (GOOGL.US) and is preparing to go public "very soon." Although Siemiatkowski mentioned that Klarna has not yet chosen the location and exact timing for the stock listing, he pointed out in an interview on Friday that the United States is the largest market for this buy now, pay later service company.

Siemiatkowski stated, "I have been following the IPO of Alphabet-C, and I think it was a perfect IPO. The company has proven itself and its business model. I believe this is the opportunity we have been looking for."

Alphabet-C, now renamed Alphabet-C, had a market value of $23 billion when it went public in 2004. Its current market value is close to $1.7 trillion, making it one of the most valuable companies in the world. Klarna may hope to avoid some of the mistakes Alphabet-C made during its IPO process: due to a sluggish market for new stock offerings, the internet company was forced to halve its issuance value, and some shareholders had objections to the Dutch auction structure. Alphabet-C had a dual-class share structure at the time of its listing.

Sharp Valuation Decline

In 2022, as investors reconsidered the growth of loose credit amid rising interest rates, Klarna's valuation plummeted from around $45.6 billion to $6.7 billion, while the company cut jobs, office space, and other costs. According to data from Caplight, a secondary market trading data aggregation firm, the company's recent valuation is around $9.5 billion. In November last year, this Swedish company established a new holding company in the UK, seen as preparation for a possible public offering. It was reported last month that Klarna has started detailed discussions with investment banks on the IPO, with an estimated valuation of around $20 billion.

Siemiatkowski said, "It is important that we have met our own standards set for the IPO, and I hope we can achieve this goal very soon."

Recently, Klarna announced a partnership with OpenAI to use artificial intelligence across the company, making progress in customer service and potentially replacing human agents. This news impacted the stock price of Teleperformance SE, a company providing call center services. Siemiatkowski said, "This is the first time we have introduced a technology that has made the experience so good that it has actually reduced the number of mundane tasks and interactions with humans, equivalent to about 700 full-time agents."

When asked if he hopes Klarna will become the first AI bank, Siemiatkowski said, "Yes, that is our goal. But our users can also contact humans at any time if they wish." The strategy has paid off: by the end of 2023, with reduced expenses and more customers repaying loans, the company's losses narrowed by 76%, shrinking last year's deficit to 2.5 billion Swedish Krona (USD 240 million), with revenue growing by over a fifth. Benefiting from rapid expansion among U.S. consumers seeking to diversify purchasing costs, Siemiatkowski stated that Klarna currently holds about 0.5% market share in the entire payment market, providing Klarna with room to grow and challenge the dominance of companies like Visa (V.US) and Mastercard (MA.US).

Founder's "Palace Struggle"

However, trouble is brewing within the company's board, with some existing investors holding different opinions on future directions, particularly due to the deteriorating relationship between Siemiatkowski and co-founder Victor Jacobsson, stemming from governance disagreements.

In January this year, Klarna appointed a new executive, Matthew Miller, from the renowned venture capital firm Sequoia Capital to the board. However, within weeks, Miller began seeking reforms in corporate governance, attempting to oust Klarna's long-time chairman and former heavyweight at Sequoia Capital, Michael Moritz.

Their dispute revealed a more unsightly conflict between Siemiatkowski and his co-founder Jacobsson. This conflict quickly became public, with Sequoia Capital issuing two conflicting statements within days.

On Friday, Siemiatkowski expressed being "very pleased" that Michael Moritz remained on Klarna's board despite plans to replace him being canceled. Moritz's venture capital firm, Sequoia Capital, has supported Klarna for the past 15 years and was also an early investor in Alphabet-C.

Superficially, the ordeal was quickly resolved: Miller was ousted, Moritz remained, and Sequoia's new partner, Andrew Reed, was Moritz's former superior. However, behind the scenes, Siemiatkowski and his estranged co-founder continue to clash on crucial governance decisions, with the battle now unfolding in private meetings and through competing financial interests. The two are at odds over how the company will go public and how much control the CEO will ultimately have, making the company potentially one of the largest IPOs this year.

Reason for "Palace Struggle": IPO Structure

Reportedly, the recent escalation of conflict between the two founders due to governance differences centered on the company's efforts to establish a new UK holding company, a key administrative step in its journey towards an initial public offering. The tense relationship between the two co-founders is partly due to the company's potential plan to go public with a dual-class share structure, which would give existing shareholders more control. It is well known that public investors have been hesitant about this structure in the past. Bobby Reddy, a professor of corporate law and governance at the University of Cambridge, said, "In this rather stale IPO market, you have to be the right type of company."

This dual-class share structure occasionally appears in Silicon Valley, but this practice has drawn criticism from some corporate governance experts. For example, Meta Platforms (META.US) has two classes of stocks, with one class having 10 times the voting rights of the other. These shares are controlled by Mark Zuckerberg, which means that despite holding a minority stake, he has voting power over the company.

Both founders have the right of first refusal, allowing them to acquire a large number of Klarna's shares in the secondary market. According to an insider, they have set up a special purpose vehicle (SPV) that will enable them to purchase more Klarna shares, allowing them to benefit from any appreciation in Klarna's stock price. However, Siemiatkowski's K Friends Partners 2022 AB has not yet purchased Klarna shares in the secondary market.

To establish this UK holding company, Klarna is seeking to cancel these pre-emption rights. Siemiatkowski, Sequoia Capital, and Heartland (the investment vehicle of the family behind the clothing retailer Bestseller) support this move. However, Jacobsson is dissatisfied with the cancellation of the pre-emption rights and privately lobbied shareholders to vote against the company's decision to reallocate share purchases, citing concerns that Klarna's sought-after approach paves the way for giving Siemiatkowski more control.

A spokesperson for Siemiatkowski stated in an email declaration, "For the benefit of the company and all shareholders, Siemiatkowski, together with Sequoia Capital and Heartland, supports the cancellation of the current special rights held."

Klarna's largest shareholders have requested the company to consider creating a special class of shares that would give existing investors (including Siemiatkowski and Sequoia Capital) more control over company decisions after going public, further intensifying the tension. Jacobsson opposes the structure of granting special shares to Siemiatkowski. A spokesperson for the CEO stated that no proposal would grant "any individual or specific group of shareholders" any new special rights.