Aker Maritime Asa And Kvaerner Asa example essay topic

The Aker Kvaerner Group The fight against bankruptcy Executive summery During 1996, Kvaerner sought to strengthen its engineering base internationally through the acquisition of the UK- based conglomerate, Trafalgar House. The acquisition was completed in May 1996. Kvaerner became an international player in shipbuilding, oil and gas, pulp and paper and engineering and construction. It moved its international headquarters to London in the spring of 1996.

In the following years, increasing financial and operational difficulties followed strong growth financed through debt. The acquisitions had resulted in a broad business portfolio, without a corresponding management capacity. The consequences were weak integration of the acquired units and no realization of synergies between the different business areas. In 1999 the company initiated a major sell-off, focusing on realizing capital through divestments. These efforts did not solve the mounting financial and operational challenges, which eventually brought the company into an acute liquidity crisis in August 2001. In July 2000, Aker Maritime ASA, a Norway-based offshore products, technology and services provider, had bought 26 per cent of the shares in Kvaerner ASA.

The investment was made with the aim of creating a focused, profitable and forward-looking group based in Norway, with substantial international operations. It took 18 months to achieve the goal of integrating these businesses. In late November 2001 an agreement was reached between Aker Maritime ASA and Kvaerner ASA. Aker Maritime injected NOK 2.8 bn in net assets, raised another NOK 3.5 bn through two direct issues and renegotiated NOK 8.6 bn of Kvaerner's debt. The result was a financially stronger Kvaerner, with four focused business areas: Oil & Gas, Engineering & Construction, Pulp & Paper and Shipbuilding. The group decided to adopt the Aker Kvaerner brand for the entire group.

But in 2002 Aker Kvaerner still had a huge liquidity problem, so the company kept selling asset to earn revenues. But in the end of 2002 came the message: Aker Kvaerner had again a liquidity cries. To day Aker Kvaerner don't know how their are going to pay their workers salary the coming month, and their struggling every day to avoid bankruptcy. Introduction The Aker Kvaerner Group Aker Kvaerner is a world-class international oil services and products, engineering and construction, and shipbuilding Group with the capability and resources to undertake the world's most challenging projects. Today's Aker Kvaerner is an industrial technology provider. It meets the needs of its customers by adding value to their business - through the provision of innovative, cost- effective solutions - for challenges in the hydrocarbons, process, and maritime industries.

The Group's activities are organised in four core business areas: o Oil & Gas o E&C o Pulp & Paper o Shipbuilding The Group has annual revenues in excess of US$6 billion, with some 34,000 permanent staff located in more than 30 countries throughout Europe, Africa, Asia and the Americas. This assignment is concentrated around the 3 last years, but to explain how they got their huge debt, that was the main reason for their crises, I start the assignment with telling the story back from 1996. Then I explain about Kvaerners way thru crises after crises and until to days almost bankruptcy. The assignment try to analyze what went wrong and way it went wrong. Expanding and growth by loan financing In 1996 Kvaerner was the biggest engineering company in Norway. Kvaerner wanted as most corporations to increase the value of the company and grow even bigger.

To do this it's a normal process to expand their business to foreign countries. Kvaerner already had a lot of operations around the world, but to grow bigger Kvaerners CEO, Erik Tonseth, saw it as necessary to increase their international attendance in shipbuilding, oil and gas, pulp and paper and engineering and construction. During 1996, Kvaerners CEO, strengthen its engineering base internationally through the acquisition of the UK-based conglomerate, Trafalgar House. To move the headquarter to London was a big change and an operation with high acquisition cost.

At this time Kvaerner already had a lot of debt and to finance the new changes they borrowed more cash from the banks. The changes resulted in a broader business portfolio and this required greater and more exigent management than Kvaerner had. The management capacity didn't correspond to this requests. No dividends and increase in share outstanding After 1997 the company had to stop to give dividends to save money, but they kept invest money to expand their business and to try to increase the revenues.

But they didn't earn the money they hoped, and the company started to increase shares outstanding to earn money. In 1998 they kept selling shares, and the value per share just kept falling. After two years following this strategy the company hadn't seen anything ells than red numbers, and in 1999 the CEO Erik Tonseth got fired. Restructuring and downsizing The new CEO, Kjell Almskog, changed the strategy and initiated a major sell-off, focusing on realizing capital through divestments.

Now it was the agenda for change that again was in focus. This involves a series of fundamental structural changes in order to create a company with a clear focus on two core business areas: Oil & Gas and Engineering & Construction. An intense focus will be maintained on the debt reduction program to meet the earlier announced objective for the Group to have zero net debt by the end of year 2000. Kvaerner planned to build shareholder value by creating a profitable Norwegian player with the strength to compete internationally in selected regions and market areas. They planned to do this by: o strengthening profitability through improved operation and better co-ordination between the Engineering & Construction (E&C) and Oil & Gas (O&G) business areas. o strengthening profitability through improved operation and better co-ordination between the Engineering & Construction (E&C) and Oil & Gas (O&G) business areas. o taking greater advantage of E&C's strong global position and exploiting its extensive existing expertise in pipelines, refining and other land-based process plants for the oil and gas industry. o strengthening the technological platform through the acquisition of small technology-oriented companies which complement the existing operations and product portfolio. o strengthening the presence in selected regions such as the Gulf of Mexico, Brazil, western Africa and the Caspian, with a particular focus on subsea production in deep water assessing alliances and partnerships with large companies. During 2000 and 2001 the more than 30 businesses was sold or closed.

Overhead costs was reduced by more than NOK 2 billion per year, net interest bearing debt was reduced by NOK 6 billion. The CEO breach the disclosure requirement But these efforts weren't enough to solve the mounting financial and operational challenges, and during the summer 2001 the CEO Kjell Almskog knew that they were going to meet a liquidity crisis in August, if they didn't borrow more money. To the shareholders he told that the future prospect for the 3 q was quite good. Now the bard struggled for new loans, but the banks said no, and in August the company was in an acute liquidity crisis.

Now the situation was so different from what the CEO had told the shareholders, so the Oslo Stock Exchange (OSE) gave Kvaerner an penalty of a half million US $ for breach on the disclosure requirement. Kjell Almskog didn't tell about the financial difficulties of the Kvaerner Group, and now they were suddenly fighting against bankruptcy in day to day operations. Kvaerner merge with Aker Maritime After two months with negotiation with banks and investors Kvaerner has agreed to merge with it's main shareholder and industry rival, Aker Maritime. Kvaerner is saved from chapter 8.

The news brought Kvaerner's long-running battle against bankruptcy to an end, though the future was still uncertain for Kvaerner's 35,000 employees, 7,000 of them in the UK. The rescue plan was made by the chairman of Aker Maritime, Kjell Inge Rokke, who have previous attempt to merge his firm with Kvaerner, but have been strongly resisted by both Kvaerner's management and its board of directors. Mr. Rokke owns more than 50% of the shares in Aker Maritime and is now the most powerful man in Kvaerner. Kvaerner, which was suffering a serious cash crunch that would have brought it to its knees in under a week, had repeatedly called on Mr Rokke to bail it out, but his refusal to step in without being properly rewarded had been consistent. But Kvaerner had to accept Mr. Rokke deal that implied that Aker Maritime will own about 50% of Kvaerner.

Internal problems in Aker Kvaerner Kvaerner shares rose 40% by lunchtime in Oslo. The result was a financially stronger Kvaerner, and most investors thought that this was the end of many bad years for Kvaerner. But the internal problems started from the first day. From the beginning Kvaerner was negative to Aker. They didn't really wanted to merge with Aker, they just did because there was no other solution out of the crisis. Kvaerner wanted to have all the control and on the other side Mr. Rokke wanted to have as much power as he could get.

And with the Russian oil firm Yukos, which owns just less than a quarter of Kvaerner, in the back Mr. Rokke became the new CEO of the board. In 2002 Aker Kvaerner still had a huge liquidity problem, so the company kept selling asset to earn revenues. The debt was a bigger problem than anyone had thought, and in the end of 2002 came the message. Aker Kvaerner had again a liquidity cries. All January have the board had meetings with the banks and investors. Yukos oil want a huge downsizing of the company, but Mr. Rokke and the rest of the board want share capital augmentation.

The board has announced that it can be a problem to pay salary to the workers the 15th of February. Aker Kvaerner is struggling every day to avoid bankruptcy. What could Aker Kvaerner have done to avoid the liquidity crises? During a period of 6 years Kvaerner went thru expanding strategy, cut of dividends, increase in share outstanding, restructuring and downsizing, merge with Aker Maritime, internal problems and the company had three differnt CEOs. For the first I think that before a company three to expand its business, it should have full control over its existing operations. With this I mean that Kvaerner should have got there already existing industries more profitable, so when the wanted to expand they hadn't needed to borrow so much, and the risks had been much lower if the investments went wrong.

At least a company which has to cut the dividends and increase shares outstanding at the same time should never borrow money to invest in new industries. Of course it's possible to earn a lot of money, but it's a risk that a huge company like Kvaerner never should have take. When you are a CEO for 35000 workers and many thousands shareholders you have a responsibility, and then I don't think it's responsible to act like Kvaerner did. Some companies don't pay dividends, but these companies usually do other things to increase the per share value, like for example share buybacks. What Kvaerner did when they cut dividends and on the same time increased share outstanding, was to decrease the per share value with double effect. And by getting so much debt they will in the future decrease their instinct value.

All this is important for way Kvaerner had an enormously decrease in shareholders value from 1996 to 2001. Her is some of Kvaerners key share figures that shows this effect very clearly. 2) Pay out ratio = (Dividend / Net profit) 3) Preliminary When they started the restructuring and downsizing in 1999, I think they did the only reasonable thing they could do. They tried to pay back debt and make their business profitable again, but it seemed as this was to late. When they in the end of 2001 merged with Aker Maritime they had a new change to get on the road again, but I think they were unlucky with the time. The year that followed after September 11th wasn't an easy period to improve the business.

To days idea of selling even more stocks is very short dated, and I really don't see how Aker Kvaerner will be able to pay back the debt of more than a half billion US$.