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Makt- og demokratiutredningens rapportserie, ISSN 1501-3065
Rapport 73, august 2003, ISBN 82-92028-80-3
A Case Study
Petter Nore
Foreword
The following work was originally conceived as a case study used for teaching at the Norwegian School of Management (BI).[1] The work does also forms part of a broader project initiated by the Norwegian Research Programme on Power and Democracy (1998-2003) [2] to gain a better understanding of recent major industrial restructuring in Norway. It was finalized while I was on leave from my present position as Vice President in Norsk Hydro while studying for an Executive Master of Business Administration (EMBA) (Trium) and being attached to the Stern School of Business, New York University for the academic year 2002/03.
I would like to thank Svein Andersen, Svein Breivik, Fredrik Engelstad, Maiken Ims, Ståle Lægreid, Øystein Noreng, David Nunn, Georg Størmer, Astrid Torres and Bent Tranøy for their roles as discussion partners or for having made valuable comments to earlier drafts. I would also like to thank Professor in Finance at the Stern School of Business, Dr. A. Damodaran, who has greatly inspired me in all questions that relate to valuation of firms. Finally, a number of key participants in the takeover process who shall remain nameless and whom I have interviewed on the understanding that their statements are “background” and not for quotation have provided valuable contributions to the report. I have only referred to such “background” material in the text with their permission.
The views expressed in the article are my own and do not reflect the views of Hydro. All errors and omissions are, of course, solely my own. As Vice-President for Information and External Affairs of Saga during the relevant period I was a participating observer of the process that will be described. This somewhat unusual observation point for an academic work requires some reflections. In particular I owe it to my readers to make clear possible biases in my research and writing. During the process described I was of the belief that Saga should preferably form an alliance with a foreign company rather than be taken over by Hydro or Statoil. In the present work I have done my utmost to correct for any biases that may arise from having held such an opinion.
Some of the Saga material I have had access to and used is not public. This is problematic from a methodological point of view, but probably inevitable when it comes to analyzing an incident that took place only four years ago. I have not made use of similar material from Hydro.
Petter Nore
Stern School of Business
New York University
June 2003
Summary
This paper describes the process and examines the forces behind Norsk Hydro’s takeover of Saga Petroleum. It concentrates on the period from May 1998 to June 1999 when the takeover was completed. It is an industrial case study that shows how political and industrial “truths” (the existence of three Norwegian oil companies) easily and rapidly crumble when conditions are right.
A number of factors pointed in the direction of a takeover:
- An intense restructuring of the global oil industry spurred by declining profitability and lower oil price where the importance of size was especially stressed. This international situation had a significant influence in Norway where it affected the conceptual framework of the different participants of the debate.
- Saga’s weakness, partly stemming from low oil prices and partly as a result of its own strategic mistakes (the Santa Fe acquisition and the hedging of the oil price), which ultimately led to a situation where the company offered itself for sale.
- Potential buyer(s) with sufficient financial strength and political knowledge and with an ability to realize the substantial synergies that could be extracted from a takeover.
- A political system that after some hesitation supported the takeover.
The case study is an example of the power of a particular global model of corporate governance that fosters the maximization of “shareholder value”. Saga’s board and management consistently sought to maximize the return to their shareholders. During 1998/99 they sought a variety of structural solutions to the company’s problems which all failed for different reasons. In the end it was clear that an outright sale, at a significant (35 percent) premium, was the best solution for the shareholders of Saga. The interests of other stakeholders did not significantly influence this decision.
The case study says something about the power that different actors have had in formulating Norwegian oil policies. The politicians took a largely passive and reactive role when Hydro made its bid for Saga. This may be because the outcome – a “Norwegian solution” – suited the politicians well. Or it may be because this policy had broad support from key actors and the government went along with these. The only significant opposition to a takeover was from the majority of the Norwegian press that supported a combination of the French oil company Elf and Saga. Saga’s employees were also strongly opposed to the takeover.
The initially passive role of politicians contrasted with the much more active and aggressive line of the state companies Statoil and Hydro, which were the prime “movers” of this restructuring.
In the end one should view the takeover of Saga as a normal economic restructuring like thousands which happen every year in the Western world – in other words pretty much “business as usual”. What made it “unusual” in the Norwegian setting was that it also represented an important break with established Norwegian oil policies.
[1] I would like to thank BI for time to work on this article while I was attached to the institution as an adjunct professor []
2 Makt og demokratiutredningen (1998-2003).