A marriage of inconvenience

One would have not a little difficulty convincing Aker Maritime AS and Kvaerner AS that the industrial logic of the consolidation has found its niche in the turn-of-the-millennium oil industry. The business of mergers and acquisitions has so far been nothing but heartache for these longstanding Norwegian offshore construction rivals.

Back in August, Kvaerner made a hostile play for its compatriot, tabling an all-shares bid for Aker through which the latter's shareholders would receive 0.79 of one Kvaerner share for each Aker share held. Aker's board of directors succeeded in persuading company shareholders to reject the offer on the grounds that it undervalued Aker, adding, significantly, that while it shared Kvaerner's belief that "in many areas there is an industrial basis for coordinating the activities of the two companies," this offer would benefit neither company.

Having failed in three previous attempts to woo Aker majority shareholder Aker RGI, Kvaerner CEO Kjell Almskog's suggestion that a marriage of the two would produce a group "second to none in the oil and gas products and technology area," fell, not surprisingly, on deaf ears.

"Industrial logic" was not the issue-"disagreement" over the value of the offer was.

Industrial logic

Not long after Kvaerner's takeover campaign ran into heavy weather, Aker suddenly turned the tables by announcing plans to buy 26.7% of Kvaerner stock, at a stroke vying to take a controlling interest in Almskog's company.

The move was a more politic one-and almost achieved the desired coup-until the European Commission entered the frame.

Last week, the EC decided to extend its ongoing "investigation" into Aker's share purchase by a further 4 months, defending its decision to delay judgment with the explanation that it is still unconvinced such a buy-in would not prove anticompetitive to the Norwegian Continental Shelf contracting market.

The EC said its "initial investigation" into Aker's proposed share acquisition found that the "transaction [could] create a dominant position on the markets for construction of oil and gas platforms as well as the modification and maintenance [and operations (MMO)] of such platforms."

No adverse effect

Aker, naturally, reckoned a "combination with Kvaerner would not adversely affect competition in any market."

To prove its antimonopolistic goodwill, Aker went so far as to shed its US-based Deepwater Company unit and its Norwegian-headquartered marine seismic unit in the interim in order to "address the [EC's] competition concerns in the [engineering, procurement, construction, and installation (EPCI)] market on the NCS."

Not far enough, though, for the EC still felt this sell-off fell short in assuaging its anticompetition fears and provided no guarantee of the creation of a "viable, stand-alone business for a competitor in the MMO market [that would] challenge seriously the position of Aker-Kvaerner."

The EC threatened an "in-depth" study examining the geographical market for EPCI contracts, and the "strategic position of the oil companies as the customers in the relevant markets."

Aker, rather than risk failing in its ambitious bid-and likely sensing a pitched battle, in the end opted to accept a smaller slice of Kvaerner-17.8%-thereby becoming its rival's largest shareholder but not its master. Like all marriages, even those unconsummated, combining Aker and Kvaerner has called for compromise.

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