Prof. Kohts vei 15
P.O. Box 169
Telephone: +47 67 51 30 00
Fax: +47 67 51 31 00
68 Hammersmith Road
London W14 8YW
Telephone: (+44) 20 7339 1000
Fax: (+44) 20 7339 1100
Web site: http://www.kvaerner.com
Incorporated: 1853 as Kvaerner Brug
Sales: NOK 70.86 billion (US$9.26 billion)(1999)
Stock Exchanges: London Oslo Stockholm
Ticker Symbol: KVIOa
NAIC: 54133 Engineering Services; 541614 Process, Physical Distribution, and Logistics Consulting Services; 211111 Crude Petroleum and Natural Gas Extraction; 23332 Commercial and Institutional Building Construction; 336611 Ship Building and Repairing
Long known as the largest shipbuilder in Europe, Anglo-Norwegian Kvaerner ASA is redefining itself around three core areas: E&C (engineering and consultancy); oil & gas, and construction. Thus, Kvaerner is selling off its entire shipbuilding division, and although it failed in its goal to divest all 27 of its shipbuilding yards before the end of 1999 (the company sold only seven), it remained committed to a complete withdrawal from that industry. The company also exited the U.S. home construction market, and divested various other concerns, including plastics and pulp and paper operations. The company’s restructuring comes in part as a result of its growth-by-acquisition drive in the mid-1990s, which loaded it down with debt at a time when most of its major markets were heading toward collapse. Seeking to reduce its reliance on manufacturing, Kvaerner is orienting itself toward the provision of engineering and other technological services. The leaner, more focused company has shed its diversified conglomerate image to become a major player in the growing market for large-scale engineering and consultancy services. The company’s E&C division capitalizes on Kvaerner’s strength in the process technologies field, providing services—from design and engineering, to project management and construction, to maintenance services—to the chemicals, pharmaceuticals, power generation, polymers, mining, minerals, iron, steel, and onshore oil and gas industries. Kvaerner’s Oil & Gas division concentrates on offshore oil and gas industry, including the design, engineering, and construction of offshore platforms, as well as development of technologies, both above and below the sea surface, to assist that industry. The third Kvaerner division, Construction, concentrates primarily on commercial and infrastructure construction projects, particularly in the United Kingdom, Hong Kong, the Middle East, India, and North America. Led by president and CEO Kjell E. Almskog, the Kvaerner restructuring has been costly for the company, with losses mounting to NKr 5.6 billion (US$732 million) on revenues of NKr 70.86 billion (US$9.26 billion). The company nonetheless expected a return to profitability as early as 2002.
Building Norway’s Industrial Giant in the 19th Century
Kvaerner was the result of a series of mergers among several pioneers in Norway’s Industrial Revolution in the 19th century. Kvaerner Brug, which was later to give its name to the group of companies, began operations in 1853, establishing its headquarters in Oslo and quickly building a reputation as one of Norway’s most prominent shipbuilders. The company’s early participation in such key Norwegian industries as power generation and forestry and paper pulp production led to a cooperation agreement with Myrens Verksted. That agreement, made in 1922, divided up the two companies’ operations into two key areas, with Kvaerner taking responsibility for the manufacturing of hydroturbine equipment and hydropower generation, and Myrens Verksted concentrating on the pulp industry.
Mryens Verksted quickly boosted its pulping operations when it entered the Kamyr pulp and paper partnership, adding its Norwegian operations to its partners’ Swedish and Finnish operations. The Kamyr partnership became the basis for Kvaerner’s pulp and paper division, which remained one of the company’s key product areas until the end of the 20th century. In the meantime, the Kvaerner-Myrens partnership continued to expand its industrial interests. In 1943 the two companies joined together to take a majority position in another Norwegian company, Thunes Mekaniske Verksted.
Amassing Partnerships in the 1960s
Following World War II, Kvaerner continued to grow and to build new partnerships. By the early 1960s, the diversified operations of Kvaerner and its partner companies were in the process of being restructured into a single entity. The first step of this restructuring began in 1960, when a single president—Kjell Langballe, then president of Kvaerner Brug—was named for the ten member companies in the various Kvaerner partnerships. This Kvaerner “group” took on a more formal status in 1967, when the companies were reformed under a single holding company, Kvaerner Industries A/S. The new diversified industrial conglomerate, with ten operating companies, more than 3,200 employees, and annual revenues of NKr 385 million, was listed on the Oslo stock exchange that same year.
By that time, Kvaerner had returned to emphasizing shipbuilding as one of its key industrial areas. The company had acquired a shipyard in Moss in the early 1960s, and by 1965 had unveiled its first Kvaerner-designed gas carrier vessel. The company’s early focus on the oil and gas industries was to pay off handsomely, as development of Norway’s offshore energy industry began to transform that country into one of Europe’s most important oil and gas producers. In the mid-1960s, the company began work on the design and engineering of a new breed of carrier vessel, designed to safely transport liquefied natural gas (LNG) products. By the early 1970s, the company had developed special tanks based on a spherical design, and the company’s first LNG-carriers using this design were built in the company’s Moss and new Stavanger shipyards beginning in 1973. These carrier designs helped promote Kvaerner’s international reputation, as the company built up its own fleet of gas carrier and reefer vessels.
Kvaerner was also strengthening its interests in the offshore oil and gas industry. In the late 1960s, the company introduced a new subsidiary, Kvaerner Engineering, formed to supply engineering and contracting services to Norway’s booming offshore industry. Kvaerner Engineering provided the basis of what later became the company’s Oil & Gas division. By the late 1970s, the company boosted its oil and gas activities when it began its first offshore construction projects, at Kvaerner Egersund, followed by the conversion of the Stavanger shipyard into an offshore platform construction plant. The Moss yard was also converted from shipbuilding during the 1980s. These yards were replaced by the acquisition of the company’s first foreign shipbuilding yard, that of the Govan yard in Glasgow, Scotland. That yard, after 30 years of losses, became profitable in 1993 under Kvaerner’s ownership.
The success of the Govan acquisition led the company to eye further acquisitions. For this it turned to Erik Tonseth, who had joined the company as a non-executive director in 1988 before being named president and CEO of Kvaerner in 1990. Tonseth, who had begun his career as a judge, had already forged a reputation for himself as something of an empire builder with the Norwegian industrial giant Norsk Hydro. As head of Norsk Hydro’s fertilizer division, Tonseth had taken that company on an acquisition drive that was to result in the world’s largest fertilizer company in just a few years.
New Leadership Brings Aggressive Expansion
Tonseth quickly turned his empire-building talents to Kvaerner, which, although enjoying a strong reputation for its shipbuilding activity, nonetheless remained highly centered around the Norwegian market. Tonseth took Kvaerner on a buying spree, picking up the Kleven shipyards in Norway, then turning to the international front with the acquisitions of Finland’s Masa yards, the Warnow Werft shipyards in Germany, and others, giving the company a portfolio of some 11 yards and establishing itself as Europe’s largest shipbuilder. Kvaerner also looked beyond shipbuilding, seeking to build its industrial and engineering expertise in other areas and international markets.
In 1990, the company agreed to split up the Kamyr pulping partnership between itself and Alsthom, forming the core of Kvaerner’s Pulp & Paper division. The company also extended its offshore industry activities, turning to the market in the United Kingdom, with investments in Aberdeen and Croydon, as well as expanding its hydroelectric equipment activities into Doncaster. These moves helped to transform the company into an international concern; by the mid-1990s, more than ten percent of the company’s workforce resided in the United Kingdom.
That percentage was to change dramatically in 1996. As th company entered into the second half of the decade, it was determined to expand its engineering and shipbuilding and other activities to a worldwide scale. The company’s first foray involved the attempted takeover of one of its chief competitors, the United Kingdom’s AMEC plc, in 1995. The company’s offer of £375 million was rejected, however, amid outcries from the British press against the “Viking Raider.” The aborted AMEC takeover sent the company shopping elsewhere, to the Trafalgar House conglomerate, held in large part by Hong Kong-based Keswick. For a purchase price of more than £900 million (US$1.4 billion), Kvaerner leaped onto the international scene, taking over Trafalgar’s 34,000-strong workforce, its holdings, including the Cunard cruise line and its U.S.-based housebuilding division, and other interests, including owner-ship of London’s Ritz Hotel.
In the 21st century intellectual property mil be more valuable than physical assets. With its arsenal of highly qualified engineers and its well-protected technology strengths, Kvaerner is well positioned to take advantage of that change.
Trafalgar House had been established in 1956 by British entrepreneur Nigel Broackes. The company’s initial focus on property development and real estate led to a listing on the London stock exchange in 1963. Broackes quickly expanded his company’s focus beyond real estate, acquiring house builder Ideal, and then commercial builder Trollope & Colls. Trafalgar added Cleveland Bridge, one of the world’s most famous bridge builders, responsible for the bridge across the Sydney Harbor, in 1970, and then acquired the Cunard Steam-Ship Company in 1971. Other acquisitions brought the company into the offshore energy market. Trafalgar later built up significant positions in the international engineering and construction industries when it purchased John Brown in 1986 and Davy Corporation in 1991. These two companies, both founded in the 1830s, were to form the core of the later Kvaerner E&C division.
The Trafalgar House acquisition made Kvaerner the world’s largest engineering and construction firm, and transferred the company’s international headquarters to London. The acquisition also loaded the company with a huge debt burden, while Kvaerner inherited Trafalgar’s financial troubles. Kvaerner, which was mostly interested in Trafalgar’s shipbuilding, engineering, and oil and gas operations, looked to sell off a number of its assets, including the Cunard cruise ship line, which was sold to Carnival Cruises in 1998 for US$500 million, and a number of smaller assets, including the Ritz Hotel. Nonetheless, Kvaerner and CEO Tonseth were criticized for moving too slowly on restructuring after the Trafalgar acquisition, and particularly for seeking the highest possible sale prices.
As such, Kvaerner was caught in a difficult position when the economies of much of the Pacific region collapsed in the late 1990s. With orders slipping and its foreign competitors, particularly the Korean shipbuilding industry, slashing prices, Kvaerner was forced to cut into its margins as well. By 1998, the company had slipped into the red, posting losses of NKr 2 billion on revenues of NKr 82 billion. The company’s debt—which reached US$12 billion by the end of that year, brought on by its ambitious expansion—had come to haunt the company as it approached the new century.
Refocusing in the Late 1990s and Beyond
In October 1998, Kvaerner’s board reacted by sacking CEO Tonseth and charting a new course. As a company spokesman told the Philadelphia Tribune: Tonseth was “the architect of Kvaerner’s transformation from a relatively minor shipbuilding company into a global organization. However the Board decided that the company is no longer moving forward fast enough and a change needed to be made. It was decided that the company needed to stop building and expanding and begin concentrating on management and making what we have more efficient and effective in order to move forward and reduce our current US$12.1 billion debt.”
By mid-1999, Kvaerner’s course became clear. New CEO Kjell Almskog, formerly of Sweden’s ABB Ltd., outlined the company’s plans to recreate itself as the “New Kvaerner.” The chief component of the company’s restructuring involved exiting the shipbuilding industry completely. The company announced its intention to sell all of its shipbuilding yards in 1999, an effort that failed, however, as Kvaerner found takers for only seven of its yards that year. Nonetheless, the company remained committed to exiting that industry as well as another of Kvaerner’s former core components, the pulp & paper industry. As Almskog told Industry Week: “We need to make Kvaerner half as big but twice as good.”
The new Kvaerner was to be centered around three core areas: Engineering and Consultancy (E&C); Oil and Gas; and Construction for the public works sector. By shedding its manufacturing base, Kvaerner placed its future emphasis on its knowledge base capacity, pointing the company, which originated in the Industrial Era, toward a position in the forthcoming Post-Industrial Society.
E&C; Oil & Gas; Construction.
ABB Ltd.; LASMO plc; AMEC plc; Preussag AG.
- Kvaerner Brug is founded to build ships in Norway.
- Company forges a cooperation agreement with Myrens Verksted.
- Company takes a majority position in Thunes Mekaniske Verksted.
- A single president is named for the Kvaerner group of companies.
- Production of first Kvaerner-designed carrier vessels begins.
- Company is incorporated as Kvaerner Industries and goes public on the Oslo stock exchange.
- The LNG carrier vessel is launched.
- Kvaerner enters the offshore platform construction business.
- Aggressive acquisition program begins.
- Company’s takeover attempt of U.K. competitor AMEC plc fails.
- Kvaerner announces reorganization to exit shipbuilding, and pulp and paper industries.
- “New” Kvaerner refocuses on engineering & consultancy, oil & gas, and construction.
Farrelly, Paul, “Pushing the Boat Out,” Independent on Sunday, March 17, 1996, p. 5.
Harrison, Michael, “Kvaerner Ousts Chief As Debt Pile Grows,” Independent, October 15, 1998, p. 19.
Knox, Andrea, “A Shipbuilder Changes Industries and Countries,” Industry Week, June 7, 1999.
Sethov, Inger, “Kvaerner President Resigns,” Philadelphia Tribune, October 16, 1998, p. 3A.
______, “Kvaerner Swings to Ql Profit on Core Gains,” Reuters, May 9, 2000.
______, “Kvaerner Swings to Record Ql Loss,” Reuters, May 6, 1999.
—M. L. Cohen