Commercial factors were key in deciding the outcome of the Hydro/Saga takeover, and the concept of “shareholder value” was decisive in understanding what drove those commercial actors. This was, of course, not a trend that was isolated to Saga/Hydro or to the Norwegian petroleum sector. It was a global trend. But in order to understand it more fully we must place the takeover in a historic setting. 1999 represented in many ways the apex in the legitimacy of the Anglo-Saxon paradigm of business behaviour or governance. No questions were asked concerning the virtues of maximization of shareholder value as the ultimate yardstick for corporate success and behaviour. M&A activities were the chosen way to restructure corporations.
One fall-out of the corporate scandals of the US during 2002 and the ongoing world recession is that a number of voices have started to debate the appropriateness and limitations of the concept of shareholder value. [54] What is new in this debate is that it also focuses on wider issues in management thinking among them the role of the CEO and the destruction of human capital associated with downsizing. But on the other hand this cannot be called a wholly new debate. Traditionally two schools of thought have stood against each other, branded respectively as ”shareholder” and ”stakeholder” capitalism.[55] The former states that firms are essentially run in order to maximize returns to shareholders, while the latter asserts that firms often accept broader obligations that balance the interests of shareholders against those of other ”stakeholders”, notably employees, but also including suppliers, customers and the wider community.
It is time to move beyond this simple dichotomy between “shareholder” and “stakeholder”. One promising approach that takes into account economic, environmental and social factors when assessing a company’s performance builds on the concept of “sustainable development”[56] It is my hope that a discussion of the Hydro/Saga takeover in a small way can contribute towards a continuous and much needed debate of how to reconcile business efficiency with broader aims of society.
The study I have undertaken has some “blank spaces”. There are a number of unanswered questions that future researchers may pursue. Firstly, more needs to be known about the role of the government during the period under consideration and in particular whether it was truly as passive as this paper suggests. In short, was the government better informed and was it more of an active backroom player than I have suggested? Secondly, was there any kind of contact between Statoil and Hydro in the run-up to the May 10 bid? It would not have been unnatural for an acquiring company to seek contact with the main shareholder in the acquired company. Thirdly there is much more to write about the political game being played after Hydro’s bid was made on May 10 than I have touched on here. Fourthly a full cash flow analysis of the two companies should be undertaken to further explore the relationship between the value of the synergies and the bid price.
It was becoming clear during 1998/99 that Saga had few allies to support its bid to continue as an independent company and that its position as the third Norwegian company was being seriously undermined.
It is tempting to use the phrase “over-determined” to describe the situation Saga found itself in. All the elements that characterize a weakening of a company before a takeover were in place. It was almost a textbook case of a company that had become ripe for, if not an outright takeover, at least a very fundamental change. Three background elements came together.
- An external situation that was becoming much more demanding. Saga was seriously weakened by the low oil prices of 1998/99. Profitability was declining in the international oil industry and mergers and acquisitions were increasingly becoming the “normal” situation in the industry. “Size” was deemed to be the key variable for success.
- Saga’s own mistakes: First and foremost the company was paying the price for a former and very serious miscalculation – the acquisition of Santa Fe. A move that was meant to take Saga into a higher division had turned sour and seriously weakened the company financially. Serious mistakes were also made by the management during 1998/99, in particular the hedging of the oil price, which tended to undermine the confidence of the financial markets in the future of the company.
- Willing buyers: Both Hydro and Statoil, as well as a number of international oil companies, saw the new situation as their opportunity to take over Saga. They all argued that a takeover would decrease costs and increase return – something that would be to the advantage of the government as well as of their shareholders.
But was the disappearance of Saga as an independent company and a “Norwegian solution” predetermined and inevitable? This is doubtful. Nothing is “inevitable”, neither in history nor in business. And one can always ask what would have happened if, for instance, Elf or another international company had made a higher bid than Hydro. Or what if the Norwegian government had actively wanted to use this opportunity to pull a foreign company like RWE into a German/Norwegian energy alliance? Or if the government had solved Hydro and Statoil’s quest for increased portfolio size by other means than by sanctioning a takeover of Saga and instead sold them additional shares in the SDFI acreage?
This case study shows, however, that so much was stacked against Saga continuing as an independent company that it would have taken an extraordinary set of circumstances to reverse the final outcome. 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 petroleum policies.
[54] See for instance Mintzberg, H., R. Simons, and K. Basu. 2002. “Beyond Selfishness”. In: MIT Sloane Management Review no. 44(1), pp 67-74 for a critical approach to the present day orthodoxy. Richard R. Ellsworth puts forward the view that firms ought to be run in the interest of its customers and not its share holders in Ellsworth, Richard R. 2002. Leading with purpose – the new corporate realities. Stanford: Standford Business Books.
[55] For a good summary of the “stakeholder” approach, see Evan, William M., and R. Freeman. 1993. "A stakeholder theory of the modern corporation: Kantian capitalism." In: Ethical theory and business. Tom L. Beauchamp, and Norman E. Bowie, ed. New Jersey: Prentice Hall, pp. 97-106.
[56] For another approach see Journal of Management and Governance, Vol.5, 2001, pp107-128 “Corporate governance: Stakeholder value versus Shareholder value”, Charreaux G. and Desbrieres P.