Corporate Profile

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A Tale of Two Companies
DE-MERGER of Hydro Agri at Norsk Hydro
MERETE AARHAUG GUUS GOORTS
STEPHANIE COYIUTO ELIZABETH CHUNG JAIME
ZHONG
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Agenda

• Introduction
• Issues Involved
• Yara
• Norsk Hydro
• Future Challenges
• Learning Points
• Q A

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Introduction
Background

• Founded in 1905 as a fertiliser company
• Run as a conglomerate with 3 separate divisions
• Largely owned by Norwegian government

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Introduction
Background

• 25th March 2004
• De-merger of Hydro Agri
• New Structure
• New Logo
• Possible new merger with Statoil

• New Structure
• New Name
• New Logo

5
Introduction
Yara International Norsk Hydro
Oil and Energy
Aluminium
Other Activities Hydro Ponova Hydro Polymers
Fertiliser Products Nitrogen Fertilisers NP/NPK
Fertilisers Yara Specialities
Gas and Chemicals
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Introduction
Background

• Details of Yaras Structure
• Upstream Operations
• Downstream Operations

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Issues Involved

• Stakeholders
• Contingency Factors
• Politics and Power

Watch the Logos!
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Yara has taken the step

• De-merger of Norsk Hydro and Hydro Agri (Yara)

9
Shareholders
Stakeholders

• 43.8 share by Norwegian State
• Norwegian investors
• International investors

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Shareholders
Stakeholders
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Shareholders
Stakeholders

• Impact of de-merger announcement

Hydros share price the last year (in Norwegian
Kroner)
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Government
Stakeholders

• Largest shareholder Norwegian State- 33
  ownership in Yara
• A hands-off policy regarding operational and
  managerial issues

What kind of impact, if at all, does the major
shareholder have on this de-merger of Yara?
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Government
Stakeholders

• A conditionally positive response

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Employees
Stakeholders

• From Norway and worldwide
• An overall positive response

15
Customers
Stakeholders

• From Norway and worldwide
• An overall positive response
• Reassurance to the Asian customers
• Viking Ship Logo
• Explanation to dealers and farmers

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Laws
Contingency Factors

• Reason for Yaras structure
• Ease of reporting of
• Cyclical upstream business
• Stable downstream business
• US GAAP requirements
• Reporting mirrors structure

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Industry Structure
Contingency Factors

• Major structural changes
• Norsk Hydro 1999-2001 turnaround process
• Triggered similar cuts by competitors
• Worldwide trend
• Away from government financing
• More market driven
• Separate entities
• Previously large conglomerates

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Political Factors
Politics and Power

• Company leadership
• Preference of ex-CEO vs. preference of current
  CEO
• Conglomerate idea vs. separation idea

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Norsk Hydros next step

• Merger Talks between Statoil and Norsk Hydro

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Shareholders
Stakeholders

• News leakage of possible merger with Statoil

Statoil and Norsk Hydro as one company
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Shareholders
Stakeholders

• An overall positive response

22
Government
Stakeholders

• Prime Minister was not informed about merger
  talks
• Governmental responsibility was assigned to
• Norsk Hydro - Ministry of Trade and Industry
• Statoil - Oil and Energy Ministry

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Government
Stakeholders

• An overall ambiguous response

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Employees
Stakeholders

• From Norway
• An overall negative response

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Political Factors
Politics and Power

• Political Factors
• Main influence factor ONE person
• Formal Position
• Former chief executive opposed merger
• Information control
• Former chief executive still has influence to
  control decisions
• Network Centrality
• Large influence in business circles
• Mobilisation of network to publish merger talks
• Premature leakage of merger talks

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Future Challenges
For Yara

• Growth
• To be an industry shaper
• To grow through mergers and acquisitions
• Company Ownership
• To be 33.3 owned by Norwegian state
• Alignment of government and business goals
• Speed of decision with government representatives
  on Board of Directors
• Uncertainty due to lack of strategic importance
• To be on guard for takeovers or other
  conglomerates business proposals

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Future Challenges
For Yara

• Total de-integration
• Support relationship with Hydros Business
  Partner
• Transitional purposes
• Sentiments of reluctance towards de-merger

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Future Challenges
For Norsk Hydro

• Future actual merger
• Take into account all stakeholders
• Garner political support
• Government
• Influential persons

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Learning Points
Theory versus Reality

• Reasons for a structural change
• stakeholders
• contingency factors
• Final decision largely determined by
• Political forces
• For Norsk Hydro and Yara
• Yara Change of CEO
• Norsk Hydro Former Statoil CEO was against the
  merger
• Government ambiguity

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Learning Points

• How does this relate to other companies and
  issues we have learnt?

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Learning Points
Other companies

• Politics are present in all companies
• Levis
• Power and politics
• UPI
• Leadership
• NUS
• Politics
• Faculty of Business Administration
• Politics

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Q A
Questions and Answers
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