Kvaerner ousts chief as debt pile grows

News Analysis: Anglo-Norwegian engineering and shipping group plans massive disposal programme
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The Independent Online
KVAERNER, the Anglo-Norwegian engineering and shipbuilding group, yesterday ousted its chief executive with a pounds 1.8m pay-off and said it planned to accelerate the disposal of unwanted businesses.

Erik Tonseth, who joined the group in 1988 and became chief executive two years later, has been forced out after presiding over a 75 per cent plunge in the share price and failing to reduce Kvaerner's pounds 1bn debt mountain fast enough.

He was paid pounds 586,000 a year and was on a three-year contract which the group confirmed would be met in full. Mr Tonseth's successor is tipped to be Kjell Almskog, the head of ABB's oil, gas and petrochemicals division.

Mr Tonseth was the architect of a hugely ambitious expansion programme, which culminated in the pounds 904m acquisition of Trafalgar House in February 1996. But the strategy began to fall apart as several of Kvaerner's businesses, notably its Norwegian oil and gas business and pulp and packaging operations, ran into trouble and the group could not offload businesses fast enough.

The shares reached a peak of NOK480 in August last year but have since slumped to 114 crowns, having been as low as 70 crowns at one point, reducing Kvaerner's value from pounds 1.5bn to pounds 400m.

Although it has disposed of assets worth NOK15bn since the Trafalgar takeover, it still has debts of NOK12bn and has been forced to issue denials that it is facing a liquidity crisis.

The Kvaerner chairman Christian Bjelland, who has taken over temporarily as chief executive, denied yesterday that it had been forced to act by irate investors: "The decision was taken by the board, not as a result of any pressure brought to bear by shareholders."

But one large shareholder made plain his unhappiness, saying: "Tonseth took some big bets with our money and these have not all paid off so it was inevitable he would go."

Mr Bjelland said the group, which has its headquarters in London's St James, would now concentrate on shrinking the business, not expanding it.

The biggest business so far disposed of is the Cunard cruise line, which Kvaerner inherited as part of the Trafalgar takeover and sold to carnival of the US in April this year for $500m. Some fish processing, paper and property businesses have also been sold.

Among the non-core businesses being lined up for sale are Trafalgar House Residential, its US housebuilding division, a plastics machinery business, also in the US, and a ship equipment division based in Singapore. The company has also earmarked properties in Oslo and London for disposal and has agreed a conditional sale of its development site at the Baltic Exchange in the City.

But other businesses, including its cargo airline, Heavylift, are also likely to be sold off. Mr Bjelland also announced a review of the group's three core businesses, engineering and construction, oil and gas and shipbuilding, which could result in further disposals.

He declined to say how many of Kvaerner's UK businesses could be affected or how many jobs could be involved. Kvaerner employs 60,000 staff of which 20,000 are based in the UK.

Mr Tonseth, the son of a senior High Court judge in Norway, arrived at Kvaerner with a reputation as a deal maker. Although he began his career by following his father's footsteps and becoming an assistant judge, he quickly tired of presiding over divorce cases and the like, and joined Norsk Hydro, the Norwegian industrial conglomerate, in 1973. There he masterminded a European acquisition spree, which included Fisons fertiliser business in the UK.

When he arrived at Kvaerner, he continued on the acquisition trail. In December 1995, Mr Tonseth failed in a hostile bid for the construction group Amec, only to return three months later with an agreed takeover of Trafalgar House. Following the Trafalgar deal, Mr Tonseth moved his office to London, brought his wife and three children to live in Weybridge, Surrey, and took up British citizenship.

A former colleague says: "The strategy was to turn Kvaerner from a company largely confined to northern Europe into a global business overnight."

Mr Tonseth certainly achieved that with Trafalgar's extensive construction project operations in the Far East and its American housebuilding interests. The deal also widened Kvaerner's interests from a group heavily dependent on shipbuilding - it is Europe's biggest shipbuilder with 13 yards - to one with interests spanning metal fabrication, bridge building and civil construction. But pulp and paper began to incur heavy losses and Kvaerner ran into problems with its Norwegian oil and gas business because of plunging oil prices.

Meanwhile its debt reduction programme began to fall badly behind schedule, partly because of currency movements, partly because Kvaerner's working capital requirements mushroomed as its order book increased from NOK60bn to NOK100bn. Mr Bjelland estimates that these two factors alone blew a NOK9bn hole in the debt reduction plan.

But others criticise Kvaerner for moving far too slowly. Olof Jonasson, an analyst with Handelsbanken Markets in Oslo, says: "In the beginning Mr Tonseth made some pretty good divestments, but he became too picky about getting the right price for some of the assets. Now Kvaerner is in a desperate situation because asset prices such as property are not what they were even six months ago and it has become a buyers' market."

He adds that what Kvaerner needs is a "bean counter" to run the business after the expansionist vision of Mr Tonseth has failed to pay off. But he doubts whether the target of eliminating Kvaerner's NOK12bn of interest bearing debt by 2001 is achievable. "When the market sees how desperate the new management is, and the pressure it is under to sell, they will want to renegotiate the price."

Mr Tonseth is still only 52 and, despite becoming a member of that rare breed - a Norwegian chief executive dumped by his board - he still has plenty of corporate ambition left. Meanwhile, he has pounds 1.7m to cushion the blow and plenty of time to indulge his love of cross-country skiing.