3.4. The government

3.4. The government

From 1972 onwards, the Norwegian government proclaimed that it wanted three Norwegian oil companies: the fully state owned Statoil, the half-state owned Hydro and the fully privatized Saga. Therefore it came as a surprise to most observers, including the capital markets,[41] when this organizational model folded so quickly when Hydro made its bid for Saga on May 10.

Why did the government change its mind? And why did Hydro succeed where a number of other companies earlier had failed in their wish to take over Saga?

The decision to change policy is notable when we know that the minority government headed by Kjell Magne Bondevik , first with Marit Arnstad as Minister for Petroleum and Energy and from April 1999 with Anne Enger Lahnstein as minister, fought to defend the structure of three companies. The main company that pushed for change was Statoil, which on at least two occasions during the autumn of 1998 asked the Ministry to increase its equity position in Saga. But the government said “no” in the same way that a number of earlier ministers for petroleum and energy from different parties had done when they had been confronted with the same question, not only from Statoil but also from foreign companies such as Elf and Total.

3.4.1. The undermining of the “status quo”

While the government was defending the “status quo”, however, a number of forces were at work that slowly undermined the model of three companies. Three factors were important:

  • Firstly there was increasing debate in the press about the need to restructure the Norwegian petroleum portfolio. The government clearly wanted a competitive petroleum industry. It observed that the profitability of the industry was being severely squeezed by lower oil prices (with consequences for activity in Norway), that mergers and acquisitions were increasingly viewed as “normal” instruments in the oil industry and that there was an underlying assumption that “size was crucial”. The ongoing discussions between the Scandinavian telecom companies Telenor and Telia, built around the assumption that size was the key variable of success, also had an influence on the politicians’ “mental maps”. There is no doubt that this analysis was reinforced in particular by Statoil, which in its dealings with politicians during 1998/99 strongly called for change in established policies, first in order to partly privatize the company and later to take control over the State’s full portfolio. When Harald Norvik proclaimed at the annual Sandefjord conference in January 1999 that Statoil ought to be partly privatized there was a short way to question other parts of the established policy.
  • Secondly the government closely followed the negative economic development of Saga and was fully aware that the situation could become so dramatic that a foreign company could make a bid. The minister for petroleum and energy did not seem to know about the contact between Saga and Hydro in February 1999. Had she known, this probably would have meant she would have had an even more sceptical attitude than was already the case concerning Saga’s economic position and ability to survive as an independent company.
  • Finally the government noted with much irritation that Saga wanted to sell an upstream gas equity share in the Visund field to the European downstream company Gaz de France. The very high price of NOK 530 million would have been a very welcome addition to Saga’s stretched finances. This move made people in the government and in the civil service more negatively predisposed towards Saga as it was seen as a challenge to established Norwegian gas policy whereby downstream actors should not be allowed to take upstream positions in Norway.

During the 1998/99 period Saga showed an increasing scepticism towards the Norwegian government, which helped to increase the relative isolation of the company and represented a significant departure from Saga’s earlier position. If there ever was a company that needed (and had received) maximum protection from the government, it was Saga, a role that Asbjørn Larsen, the CEO of the company from 1979 till his retirement in 1998, well understood. Diderik Schnitler represented a different approach. His basic belief was that the survival of Saga was determined in the end by the management’s ability to increase the value of the company and not by having good government contacts.

Then, Saga further weakened its position. Towards the end of April Minister Lahnstein was informed of Saga’s efforts to find new partners. This surprised her because at the outset she had had a certain amount of sympathy with Saga’s position, and in particular the company’s attempts to be “an alternative thinker” and thereby represent much needed corporate “diversity” on the Norwegian shelf. But she felt she had not been given the whole story by Saga’s management, who had paid her a visit on April 22, emphasizing these characteristics of Saga, but not going into depth about the broader ownership issues and the positioning of the company.

When Hydro made its move on May 10, the minister was therefore not very supportive towards Saga. Support for the established policy was wearing very thin. She seems not to have had knowledge of Hydro’s offer until the weekend before it happened. In her first statement she asked for time to consider the new situation, but did not take any principled stand against what would have been a fundamental change in Norwegian petroleum policies; that in itself was an important position. She did, however, state that she preferred that Norsk Hydro buy Saga rather than foreign companies.[42] She was later to somewhat “soften” her language in this respect, but there was absolutely no doubt during this period what her position was – hardly surprising for a member of the Centre Party. Her colleague Lars Sponheim, Minister for Industry and the minister formally in charge of Hydro, was more forthcoming in his first reaction, when he characterized the move as “interesting”[43].

It is unclear whether the civil service had any prior knowledge of Hydro’s move.

3.4.2. Government options

It is interesting to note what the government did not do.

  • The government could (at least temporarily) have stopped the takeover. It had the means at its disposal. It could have instructed Statoil, with its 20 percent ownership in Saga, to vote against the takeover while it sought a new mandate in the Storting to change the going policy. But it did not. It was unthinkable that a government would use its power of instruction with regard to Statoil on this matter. The last time it had used its power was ten years ago. One should furthermore not discount a human element in the story. The board of Statoil would probably have resigned had it been instructed to vote in a particular direction – the last thing that the new minister would have wanted, given that she had removed the previous board just a month earlier.
  • It could have encouraged foreign companies to make a bid for Saga. But this would have clashed with a basic principle held by the minister (and by broad sections of the government) who viewed the position of the three Norwegian companies as having been achieved by active national preference. Their equity positions were therefore a form of “national heritage”. If one of these companies had to give up its equity position, for whatever reason, it should be taken over by another Norwegian company. So when Saga was for sale, it was imperative for her to arrive at a “Norwegian solution”. Hydro (and Statoil) were the natural heirs to Saga’s assets. This was also the basic thinking in the Labour Party as well as in the civil service.
  • A decision could have been made to accept the initiative straight away. This was not done despite the full support of the Labour Party (see below). The reason was that the government had to sort out a number of issues of principle on its own. The Centre Party did not want the state ownership in Hydro to drop below 50 percent. A merger between Saga and Hydro would mean that the state ownership would drop to around the mid-40s percent. Following a fair amount of political horse-trading the Centre Party accepted the dilution of the state share. It did however, in parallel, fiercely push for a solution whereby Saga would be divided between Hydro and Statoil. This was finally achieved (the Centre Party’s support undoubtedly helped, as did its discussions with the opposition Labour party on this particular issue.)
  • The government could have refused to let the merger go through and let Statoil and Hydro gain a “critical size” by selling them parts of the SDFI portfolio.

3.4.3. The opposition

After May 10 the government made contact with the Labour party and rapidly found out that it fully supported the takeover by Hydro (but subject to some conditions). There were therefore no parliamentary obstacles to proceeding. The Norwegian Labour Party had a special position as the largest opposition party. According to tradition in Norwegian petroleum policies, it would be necessary for the government to seek a broad coalition for fundamental changes in existing policy. Hydro’s proposed takeover of Saga was clearly such a change. Jens Stoltenberg, the deputy leader of the Labour Party and the spokesman on energy issues was reasonably clear: “It is not sure that we can maintain three Norwegian and independent oil milieux”[44], he said, but added that the issue would have to be studied further. He was particularly careful when commenting on the prospect of reduced state ownership in Hydro, a contentious issue in part of his own party also.

As the play for Saga unfolded, the position of the Labour Party became clearer. On May 25 the leadership of the Party held a press conference where they suggested that Statoil and Hydro should divide Saga.[45] This concern for the future position of Statoil was not surprising. Throughout the Norwegian petroleum era The Labour Party had very much viewed Statoil as “their baby”. They had been instrumental in creating the company and they defended it vigorously. So when Statoil’s interests had been taken care of through the agreement to divide Saga between Hydro and Statoil, the Labour Party was satisfied.

The main result of the Saga story for the Labour Party was more long term. When the party one year later argued in favour of a Statoil privatization it used the example of the Saga takeover. 100 percent state-owned companies, it was argued, were at a constant disadvantage because they could not use shares to pay for takeovers or strategic moves.

The other party on the Norwegian Left, the Socialist Left Party (SV) initially supported a merger between Saga and Elf. But at this point the SV did not have much influence and its position did not have much effect on the final outcome. The Progressive Party (Frp), a right-wing populist party, was also opposed to the takeover. Their reason was the loss of diversity in Norway and the strengthened role of the Norwegian state following the disappearance of the only private Norwegian oil company.

In the end, the government, with parliamentary support from the Labour Party, gave Hydro’s takeover its blessing. The formal acceptance from the Storting came in a parliamentary debate on June 16 when a clear majority voted in favour of a targeted share issue of Hydro with the effect that Saga’s shareholders were paid in shares and the state’s share in Hydro decreased. The Saga story was closed.

[41] There is no indication that any of these actors expected what was to come. If they had, they would have recommended Saga shares to their clients in order to participate in the ensuing value increase.[]

42 Dagens Næringsliv, May 11, 2002.[]

43 Dagbladet, May 11, 2002. []

44 Dagsavisen, May 11, 2002. []

45 Saga, which at the time wanted to achieve the highest possible price for the company, even sent out a terse press release in response to AP’s plans, which the company criticized as de facto limiting competition for its shares.

Publisert 25. nov. 2010 13:52