Kristian Siem is considered by many to be the Warren Buffett of Norway. Since 1987 Siem has compounded his money at a rate of about 30% annualized, increasing his worth from about $5 million in 1987 to around $2 billion by 2014. He has done this by focusing on two relatively narrow sectors: offshore drilling and shipping — about which he has extensive knowledge.
Siem, 67, has a long track record of private and public investment in both oil and gas and shipping. He made his name and his fortune by buying undervalued assets, a story that begins in the late 1970s when Siem, not yet 30 years old, came upon a rare opportunity in the offshore drilling industry. The Haakon Magnus, a semi-submersible drilling rig, had been seized by its lender after its owner’s default. The rig, which had been built for $37 million, could be had for $22 million. Siem, who described himself as a consultant, didn’t have $22 million. He had little more than a business card and an office in the spare room of a small shipping company owned by his godfather.
Siem also had a reputation as being an expert in offshore drilling. His business school thesis had been on the transportation of liquid natural gas (LNG), and after graduating, Siem had been hired by Fred. Olsen, a Norwegian shipping industrialist and head of the Fred. Olsen Group.
But the Haakon Magnus deal was problematic from the start. After Viking Offshore, its owner, defaulted, Chemical Bank foreclosed on the drilling rig. The bank needed $22 million to clear the debt. Siem could borrow the $22 million, but would also need an additional $4.5 million in working capital to operate the rig. That money would have to come from outside investors. Siem contacted the head of the oil division at Norcem, Jan Tore Odegard, whom he had consulted in the past. On the telephone, Siem said to Odegard:
You want to get into offshore drilling? Come into Haakon Magnus. I will give you 15% of $4.5 million in equity, which is a very small investment. And I’ll give you a chance to buy options to take your equity investment to 50%. That means you will control a new semi-submersible with 15% of $4.5 million. If you are serious about going into offshore drilling, you won’t find a cheaper ticket.Odegard got the approval for the investment from Norcem’s chief executive — and Norcem signed the agreement to subscribe for the stock and options. But when Siem approached Norcem to pay for its investment, the chief executive refused to complete the sale.
On hearing the news, Siem insisted on a meeting. In the meeting he told Norcem’s CEO: “You’re pulling the rug under my whole project.” The CEO responded: “You see, when you get drier behind the ears like me, then you will begin to understand that things are a little bit more complicated, so just accept that we are out of this business.”
In a pattern that would repeat itself many times in Siem’s career, he found another way.
Most of the Norwegians who had been vendors to Viking Offshore were stuck with a secured claim on the Haakon Magnus. They would not be able to collect if Chemical Bank sold it out of foreclosure for less than $22 million. Siem approached them to argue he was their only chance to collect the full sum they were owed. The catch was that they would have to ante up equity in Siem’s syndicate. Though they were reluctant, Siem believes that they were persuaded by his passion:HT: FT Alphaville's Further Reading post, June 7.
My enthusiasm and drive for this project, and conviction that this was the right thing to do, was contagious on other people around me. They would see that, “Hey, we don’t know this as well, but we can see that Kristian is in there and he’s absolutely determined. He’s putting all his money into it. He’s going for it and we want to be a part of it,” so that, I think, was a factor also, in raising the capital necessary.These investors would ultimately end up more than tripling their money on this investment when Siem sold the rig for $32.5 million to his former boss Olsen.....MORE