From MarketWatch, June 6:
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:
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
HT: FT Alphaville's
Further Reading post, June 7.
