Hvalbye Capital Markets
2014
An Analysis of the Fredriksen Formula to
Enacting Entrepreneurship
by
Are Rodahl Hvalbye
Hvalbye Capital Markets
2014
Table of contents:
Table of contents: ..................................................................................... 2
Introduction: ............................................................................................ 3
Background: ............................................................................................. 3
Biography: ................................................................................................. 4
Financial wealth:........................................................................................ 4
Company portfolio: .................................................................................... 5
Theory: ..................................................................................................... 9
Classfying an entrepreneur: ....................................................................... 9
Entrepreneurial role: ................................................................................ 11
Personal(ity) characterization: ................................................................ 12
The Fredriksen Formula: ....................................................................... 14
Strategy and takeover targets: ................................................................ 14
Mergers and acquisitions: ........................................................................ 15
Corporate governance: ............................................................................. 15
Lean organizations: ................................................................................. 16
Responsible ownership: ........................................................................... 17
Bailout capability: .................................................................................... 17
Mutual exposure/value maximizing: ........................................................ 18
Dividend focus: ........................................................................................ 18
Financial leverage: ................................................................................... 19
Financial engineering: .............................................................................. 20
Risk willingness: ...................................................................................... 20
A Fredriksen premium? ........................................................................... 21
Conclusion: ............................................................................................. 22
Appendices: ............................................................................................ 23
References: ............................................................................................. 24
Hvalbye Capital Markets
2014
Introduction:
This project paper revolves around a case study of John Fredriksen, his group of companies,
business practices, entrepreneurship methodology and financial management style.
The objective is to define what type of entrepreneur Fredriksen is, and get an understanding of
his financial success through examining his entrepreneurial methodology. I find it necessary to
emphasize that the intention is not to analyze how successful he is, but rather how he is
successful. However, in order to identify the latter one needs an understanding of the first.
Hence the reason I devote a portion of the paper to cover this aspect.
Theoretically, Fredriksens wealth could be ascribed to pure luck; however, my hypothesis
contends that it is attributed to a specific methodology of practicing entrepreneurship.
The theory aspect receives attention starting page 5, but is also partly intertwined
with the empirical research throughout. Theory is based on curriculum, Bissant and Tidd, the
works of Wickham as well as any other authors cited in the reference list and in parenthesis.
I have chosen this topic because I find the ventures and success of Mr. Fredriksen to be
fascinating, and I believe his entrepreneurial style is somewhat unrecognized. I also argue that
Fredriksen has received undeservingly little attention in relevant academic research, as opposed
to popular media spotlight. This analysis is largely based on an earlier paper written by myself
and is cited in accordance with instructions given to me by examinators.
The topic will be researched in light of Fredriksens historical and current business ventures and
dispositions, and is based on available information from literature, news archives and company
publications.
Background:
John Fredriksen is a widely acclaimed businessman and skilled shipping tycoon, known for his
eccentric persona, pragmatic attitude and vast affluence. Fredriksen comes from a humble
uprising at the east side of Oslo and is an entirely self-made billionaire that rose to fame
through an almost clich-like rags to riches storyline (as depicted in appendix A).
Fredriksen is the architect of several world-leading contemporary corporations, in which he
holds large ownership stakes that make up the majority of his entrepreneurial-based wealth.
Adopting an insensate great person view of Fredriksen on the back of his success is not
particularly useful, as it may self-justify ones perception. Therefore, I have assumed a critical
view of Fredriksens undertakings and refrained from any type of aggrandizement.
Reading an unauthorized biography - written by editor, social commentator and proclaimed
anti-capitalist Gunnar Stavrum - where Fredriksens actions is scrutinized and receive criticism,
has been influential in the analysis. I still ascertain that Stavrums publication needs to be
considered in light of a certain bias. One observation of mine is that John Fredriksen has been
the subject of a high degree of Law of Jante thinking through pervasive press coverage,
Hvalbye Capital Markets
2014
forging a somewhat unflattering public image of his persona and thereby undermining his
entrepreneurial abilities.
Biography:
For a summarized biography emphasizing the relevant events and highlights of John
Fredriksens life, based on the works of Stavrum and information from the Great Norwegian
Encyclopedia, see appendix A.
Financial wealth:
Fredriksens wealth, with its remarkable size and growth, is partially the trigger for researching
the topic as it stimulates the curiousity of how it was attained.
Fredriksens personal fortune has received attention and scrutiny from several parties (such as
media and tax authorities), and is convenient to estimate due to a large portion of ownership in
publically listed companies.
Forbes estimated Fredriksens net wealth at $11.5 billion for their 2012 global billionaire ranking
(Forbes, 2013), Norwegian business journal Kapital place him atop their annual ranking of
Norways richest people suggesting 15bn. (Hegnar Online, 2013), whereas Fredriksen currently
ranks 55th place with $15.6bn. in Bloombergs real-time Billionaire Index (Bloomberg, 2013). My
personal estimations arrive at similar levels (appendix B), suggesting a total net worth of
$15.9bn when including real estate and cash deposits.
Although no longer officially a Norwegian national after applying for Cypriot citizenship,
Fredriksen is undisputedly Norways richest person. He has almost threefold the wealth of the
second person on the list - Olav Thon, an old, eccentric, self-made property tycoon.
Shipping has been Fredriksens main wealth catalyst and field of interest, and continues to be
his preferred time occupation (Trim, 2011). Shipping companies are historically where
Fredriksen has had most of his capital, however as of lately, Seadrills strong stock price
performance has caused offshore drilling rigs to surpass shipping. As illustrated in the pie chart
below (a snapshot from 18.04.13), showcasing the different sectorial focuses, Fredriksens
involvement in the rig sector (through Seadrill, Northern Offshore and North Atlantic Drilling)
now constitutes almost half of his equity wealth (~ $4.7bn.).
Hvalbye Capital Markets
2014
The crude oil tanker segment is where Fredriksen gained most of his wealth as well as public
exposure - earning him the nickname Tanker King (Stavrum, 2006). Earnings from these
vessels has since found its way into investments in other maritime sectors, such as dry bulk,
offshore supply, LPG carriers, chemical tankers, LNG tankers and containerships.
My personal mapping of Fredriksens wide-slung network of ship controlling entities, estimates
that Fredriksen owns and/or controls a fleet of 232 vessels with a combined tonnage of 31.4
million deadweight tons (see appendix C). Of these, 139 are believed to be sailing and actively
trading, while the remainder are newbuilding projects under (planned) construction (appendix
C).
To put these numbers in perspective, Fredriksens total fleet is almost twice the size (in terms
of tonnage) to that of all Norway-flagged vessels - effectively making him the equivalent to the
12th largest shipowning nation in the world (UNCTAD, 2011). Correspondingly, it is equivalent to
almost 2.2% of the world commercial fleet. Albeit, these estimations imply that one considers
the various shipowning entities that Fredriksen partly and/or indirectly own as one
establishment. Certainly, this fleet has substantial debts attached to it, but still gives a clear
indication of Fredriksens sizeable real assets.
Conclusively, Fredriksen is an extraordinarily affluent person that - perhaps more exceptionally
- has built his companies from scratch using a trademark entrepreneurial approach that is the
topic of this paper.
Company portfolio:
The sphere of Fredriksen companies, collectively referred to as the Fredriksen Group,
Seatankers Group or the Greenwich Group, is comprised of 18 staple companies that are
exchange listed with a collective market valuation of about 50 billion dollars (appendix B). To
put this in perspective, it is equivalent to about a quarter of the national budget of Norway.
The core companies, where Fredriksen retains between 18% and 58% ownership, include
Seadrill, Marine Harvest (delisted), Frontline, Golar LNG, Deep Sea Supply, Golden Ocean
Group, Archer (formerly Seawell), Ship Finance International, North Atlantic Drilling (NADL),
Hvalbye Capital Markets
2014
Northern Offshore, Frontline 2012, Golar LNG Partners and Independent Tankers Corporation
(most of whose logos can be seen below).
A selection of these companies - specifically Seadrill, Marine Harvest, Golar LNG, Ship Finance
and Frontline (2012) - are considered world-leading entities within their respective sectors,
when considering market share, operational performance and profitability.
Other known (non-core) holdings include equity stakes in TUI AG and TUI Travel two affiliated
companies that make up one of the worlds largest tourism operators as well as Fred Olsen
Production, Calpine Corporation and Knightsbridge Tankers (see appendix B). The common
factor among these investments is that they were made on the premise of distressed or
understated valuation.
In a report by composed by Menon Business Economics, it was calculated that the groups
Norwegian based companies comprise 8.5% of Oslo Stock Exchanges value and 2.6% of total
Norwegian trade and business. Additionally, it stated that the groups total borrowings
constitute almost 10% of the cumulative loan portfolio to business customers in Norway (Bgh
Holmen et al., 2012).
Below I will take a closer look at the four most prominent companies considered to be/have
been the core of the group. This historical review is vital in order to comprehend Fredriksens
way of enacting entrepreneurship through a methodology that will be explicated further along.
Marine Harvest:
Fredriksen entered the salmon industry in 2005, through his holding company Geveran
Tradings purchase of Nordeas creditor-in-possession stake in Pan Fish. Pan Fish traces its roots
back to 1992, but was turned over to its creditors due to financial distress caused by low
salmon prices (Bgh Holmen et al., 2012).
Marine Harvest ASA was formed as a result of a merger between Pan Fish ASA, Fjord Seafood
ASA and Marine Harvest NV in 2006. The new enterprise kept the name of Marine Harvest, logo
of Pan Fish and the slogan of Fjord Seafood. The triple merger was an upshot of a widespread
consolidation within the fish-farming and seafood industry instigated by Fredriksen (Bgh
Hvalbye Capital Markets
2014
Holmen et al., 2012). Most recently, Marine Harvest acquired its Oslo-listed peer, the
processor/packager Morpol ASA.
Today the company is the worlds largest processor of salmon wherein it operates in 22 different
countries and employs over 10,200 people (including Morpol). Revenue has historically lied
between 13.5 and 16 billion NOK the last five years, but profitability and (thus) market value
have been subject to volatile salmon prices. Accordingly, the reasoning for the purchase of
Morpol has been to create a more horizontally integrated company that is less exposed to the
spot price of salmon (Marine Harvest, 2013).
Seadrill:
Seadrill is the worlds second largest owner and operator of offshore drilling rigs, with in excess
of 60 rigs and 7,000 employees (Seadrill, 2013). The company was originally headquartered in
Stavanger, but recently moved to London.
Seadrill has since its establishment in 2005, been the case of unprecedented growth organically
and through a series of acquisitions (Marine Money, 2010). The foundation of the company was
Fredriksens controversial takeover of Smedvig ASA in a bidding war Noble Drilling in 2006.
Fredriksen surprisingly managed to snap up the company in front of Nobles eyes despite the
fact that Noble already had purchased over 40% of the companys stock (Starr and Olsen,
2006). The same year Mosvold Drilling and Odfjell Drilling was absorbed, followed by Eastern
Drilling and then Scorpion Offshore in 2007 and 2010 respectively. The latest acquisition
sparked a bidding war with British rig operator Ensco, where Fredriksen once again was
victorious.
In 2007, the drilling and well service operations of the company was divested in a separate
entity dubbed Seawell, which proceeded to go on a buying-spree acquiring another six related
companies and finally merging with Allis Chalmers Energy, incorporated the name Archer (Bgh
Holmen et al., 2012). Another divestiture took place in 2011, when North Atlantic Drilling was
created as a pure-play ultra-deepwater entity by acquiring Seadrills modern rigs operating in
the North Atlantic region.
Seadrill is currently the fourth largest company in market capitalization among the hundred-
something companies listed on the Oslo Stock Exchange, exceeding that of Norwegian staple
blue-chip companies such as Yara and Hydro - outfits with roots going hundred years back.
Frontline:
Frontline has largely been Fredriksens pet project and main wealth facilitator before Seadrill,
therefore being the company that most people associate with John (Stavrum, 2006).
Frontline AB was founded in 1985 and was listed on the Stockholm Stock Exchange from 1989
to 1997. Hemen Holding became the largest shareholder of the company in 1996 through a $55
million bulk stock purchase. A year later Fredriksen trumped through a decision to change the
companys domicile from Sweden to Bermuda, list the shares on the Oslo Stock Exchange and
sell off a part of the fleet (SNL, 2013). Since this restructuring, Frontline has been actively
involved in a consolidation of the tanker industry and has carried out a series of corporate
Hvalbye Capital Markets
2014
acquisitions. These include London & Overseas Freighters (1997), Cambridge Partners (1998),
Swedish company ICB Shipping (1999) and Golden Ocean Group in 2000 (Bgh Holmen et al.,
2013).
The takeover of ICB turned into a two-year hostile takeover battle, whereupon Fredriksen
utilized tactics such as ads in the Swedish press and intimidating letters to the board of
directors. The commotion that arose from the takeover cemented Fredriksens image as a no-
nonsense hardball negotiator. The CEO and largest shareholder of ICB at the time, a Swedish
aristocrat, benchmarked the sentiment when saying, "he's a tough cookie, but he knows the
shipping business" (Gorham, 2001).
The entry into Canada-based Golden Ocean, which went bankrupt after the 1997 Asian
downturn, was an interesting endeavor. Fredriksen had amassed the companys heavily
distressed debt, becoming the largest creditor and effectively taking control of 17 collateralized
tankers for a mere $65 million outlay. Golden Oceans fleet of non-oil tankers was divested and
placed into a new entity, appropriately named Golden Ocean, which was listed on the Oslo
Stock Exchange and its shares distributed to Frontline shareholders (SNL, 2013).
After the acquisitions, Frontline had 43 tankers with a combined tonnage of eight million
deadweight tons (dwt) and was officially the worlds largest. At the peak, Frontline operated a
partially owned and chartered fleet of 70 oil tankers with a combined weight of about 15 million
deadweight tons (Nightingdale, 2010). This is equivalent to a combined carrying capacity of
about 135 million barrels of crude oil, or about a week worth of United Statess oil demand (EIA,
2013).
In recent terms, the supertanker market has experienced yet another major slump caused by
the excess supply of ships. The company has been amassing losses finally leading to a breach in
the covenants of the bonds, likely heading towards defaulting and bankruptcy. However,
Fredriksen stepped up and bailed out the company by injecting capital and creating a new
company that absorbed most of the liabilities (see below).
Frontline 2012:
This new company was created as a measure to bail out Frontline through a 300 million dollar
equity injection, whereby two thirds of the proceeds was used to purchase the original
Frontlines newbuilding contracts along with seven sailing ships and the associated bank debt.
Frontline 2012 is listed on the Norwegian OTC list and is considered Fredriksens main
investment vehicle for growth in the shipping sector. Thus far, the company is rumored/partly
confirmed to own shipbuilding contracts for 80 something vessels, divided between bulk
carriers, chemical tankers, LPG tankers and crude carriers (Ang, 2013). My research, based on
scarcely available information, suggest that Fredriksen thus far has ordered ships with a
collective value of between 6-7 billion dollars (Haavaldesen, 2013). The orders are said to have
occupied the best slots at the most prominent shipyards at prices that are ~ 40% lower than 4-
5 years ago and at 30-year lows when adjusted for inflation (Stenshagen, 2012).
Almost two years ago, Fredriksen was quoted saying that the oil tanker market will "()
collapse in a year or two and that "we'll wait until the market collapses and then we'll buy up
Hvalbye Capital Markets
2014
what's there" (Wright, 2011). Sometime later last year he exclaimed "when the market goes to
hell, it's more of an opportunity than a problem () (Koranyi, 2011). These citations illustrate
the ambitious undertaking of the new firm, which according to some analysts is believed to
order up to 150 new ships by the end of this year.
Theory:
John Fredriksen has to my knowledge not received any attention in published academic
literature, there are however numerous theoretical aspects that are relevant to discussing him
and his methodology.
The intention of explaining the source of Fredriksens wealth and success can be debated in light
of different theories and academic perspectives. I intend to look at the classification schemes,
the different role(s) and characterizing the personality of entrepreneurs (I do not intend to
discourse much about psychology). Some of the discussion also pertains to business strategy,
managing resources and finances, and success factors of entrepreneurship.
Wickham (2006, pg. 225) point out that the success of an entrepreneurial venture is contingent
on four factors: (1) the entrepreneur, (2) the opportunity, (3) the organization, (4) the
resources, and maybe more importantly, the symbiosis between these aspects. The interaction
between these factors is defined as the actiual entrepreneurial process, upon where all factors
need to be present (Wickham, 2006). Consequently, it is the level of proficiency that the
entrepreneur is able to display towards synchronizing the organization for opportunities and
resources, which determines the success of the venture.
Additionally, Wickham (2006, pg. 264) discusses entrepreneurial success in light of resource
use. He raises the point that (first-time) entrepreneurs and their success appear somewhat
paradoxical. This is because, he claims, they lack the same level of resources as established
competitors, in that they are short internal success factors, and secondly, that resources are
more expensive due to higher risk premiums. Wickham claim that the reason entrepreneurs
succeed despite these intrinsic disadvantages, is that entrepreneurs work their resources harder
than more established businesses.
Classfying an entrepreneur:
Classifying the entrepreneur is important, as it provides insights to researchers, investors,
customers and policymakers that are crucial to their respective decision-making. Although
comprehensive classification schemes exist, one should be somewhat wary of pigeonholing
entrepreneurs due to their ever-changing state and dynamic context.
Wickham (2006, pg. 34), contends that there are two main approaches - either to classify the
entrepreneurs themselves or their individual ventures. One major distinction lies in being a
growth-oriented and independence-oriented entrepreneur, whereas the later is typically
small-scale craftsmen with a craving to become autonomous.
Landau (1982) has developed a classification system based on risk bearing (vertical column)
and level of innovation (horizontal column), where both factors are dependent on eachother
(see table below).
Hvalbye Capital Markets
2014
An individual with high risk-taking and low innovativeness is considered a gambler. The
premise of the gambler is to be able to deliver value better than exsisting players in the
marketplace, whereas a consolidator takes on less risk and provides a marginal improvement.
This designation system is particularly interesting in light of Fredriksen, as he would probably be
defined as a hybrid gambler/consolidator, yet likely rank closer to the former.
Some of the academic discussion revolving around the classification of entrepreneurs pertains
to whether one has an adaptor or an innovator mindset. Michael Kirton made this distinction in
his 2003 Adaption-Innovation theory, which is a psychometric approach to assessing creativity,
that claims that an individual's preferred approach to problem solving can be placed on a band
ranging from high adaptation to high innovation. Adaptors use what resources they are given to
solve problems by time-honoured techniques, while innovators look beyond what is available to
solve problems with the aid of innovative technologies. Kirton suggests that while adaptors
prefer to do well within a given paradigm, innovators would rather do differently by going
beyond existing paradigms (Kirton, 2003).
Fredriksen is primarily an adaptor (there is little innovative about owning ships), typically
improving existing solutions and systems in order to be an early-mover and exploit new
products/technologies and market opportunities. An example is Seadrills procurement of top-
spec, high-end ultra-deepwater semi-submersible drilling rigs from Samsung Heavy Industries
before most others, that benefitted handsomely in the aftermath of the Gulf of Mexico Macondo
well blowout, due to stricter regulations and increased demand for more modern/safer rigs.
Narrowing down on the attempt to classify Fredriksen, Wickham (2006, pg. 38) names a special
breed of entrepreneurs, called serial entrepreneurs or habitual entrepreneurs, which are
motivated by the rewards of establishing and building businesses more than anything. The
serial entrepreneur is able to effectively exploit his/her technique and replicate successful
business ventures and projects on the same premises. Some observers, such as Gartner
(1985), actually suggest that when the building stage of the venture ends, so does true
entrepreneurship.
As per Wickhams methodology, serial entrepreneurs are sub-categorized into sequential
entrepreneurs and portfolio entrepreneurs (2006, pg. 39). The first category pertains to
people whom start new business ventures in sequence, preferring to focus on one at a time,
Hvalbye Capital Markets
2014
while entrepreneurs who establish and operate several businesses simultaneously characterize
the latter.
Wright M., Robbie K. and Ennew C. (1997) have expanded on the definition of serial
entrepreneurs, with three detailed distinctions: (1) defensive serial entrepreneurs, (2)
opportunist serial entrepreneurs and (3) group-creating serial entrepreneurs. The category of
group-creating entrepreneurs is somewhat self-explanatory, and evolves around the idea that
creating an array of businesses or different entities is essential to the strategy of the
entrepreneur. E.g. owning a distribution network of fuel trucks is complimentary to operating a
chain of gas stations. An opportunistic entrepreneur undertakes new ventures because he or
she perceives a short-term possibility of financial gain.
Fredriksen would fall somewhere betweem the two, and I would argue that there is room for a
fourth category consisiting of opportunistic group-creators. My interpretation is that Fredriksens
business empire has gone through a gradual expansion and branched out into different sectors,
primarily due to the following reasons:
1. Presence of lucrative/interesting opportunities (e.g. the acquisition of Marine Harvest)
2. Necessity to diversify income sources (e.g. the acquisition of Aktiv Kapital)
3. Need to conserve wealth/park cash
4. Commercially founded expansion (market power, synergies, economics of scale, etc.)
5. Leveraging group-wide synergies attainable in an integrated industrial conglomerate
(e.g. the establishment of Arcadia Petroleum)
Undoubtedly, the more successful businesses an entrepreneur has developed in the past, the
lower the threshold becomes for the next venture to become successful.
A key reason for this is financing, but the cause is two-fold. First, previous ventures will likely
have generated retained earnings and/or sales proceeds (from an exit) that can be allocated
towards new projects. Secondly, the access and cost of external funding is more beneficial with
entrepreneurs abilities having become a more attractive proposition for investors. Access to
capital is essential in entrepreneurial development, with studies (Birley and Westhead, 1994)
concluding that start-ups with easy funding access are associated with higher relative growth
and rate of success.
Another obvious reason for improved success rate is the ability to transfer competitive
advantages to subsequent business ventures, as well as leveraging on past knowledge and
experience.
Entrepreneurial role:
Entrepreneurship and entrepreneurs have been defined differently through times, the most
pragmatic definition is a person who founds, organizes and operates (a) business(es)
(Wikipedia, 2013). Other definitions extend beyond this boundary and include aspects such as
risk, opportunity, innovation and management styles.
Wickham considers at entrepreneurship through two dimensions - personal and social (2006,
pg. 222). Whereas the personal dimension is largely based on motivation, and will receive more
Hvalbye Capital Markets
2014
attention below, the social factor is a wide-flung one that concerns the wider society.
Entrepreneurs provide the the public with new/cheaper products and services, jobs, increased
competition, tax income and all the trickle-down effects essential to the well-being of the
general economy.
Some commentators suggest that the primary role of an entrepreneur is to maximize return to
the shareholders (Wickham, pg. 11), however the role of an entrepreneur is undisputedly more
diverse because he or she has to consider a wide range of stakeholders.
Most academics clearly distinguish between owners/investors and managers when it comes to
entrepreneurs. As per this distinction, first made by French economist J.B. Say (Wickham, pg.
6), an entrepreneur who owns a substantial part of the business while also undertaking
managerial tasks, is consequently assuming two roles. What complicates the picture in the case
of Fredriksen, is that he frequently entertains more than one of these stakeholder roles. At
times, he can even be his own customer (as is the case with Frontline and Ship Finance).
Accordingly, interests largely seem to be aligned across most roles.
Wickham (2006, pg. 8) suggests that the provision of leaderships and being a good leader is
increasingly recognized as a critical part of enrtrepreneurial success. The role of supporting and
directing is elementary in making all the members of the team pull in the right direction, be
focused and have motivation for the task at hand. Being able to perform all these tasks
effectively requires strong leadership.
For the same reason that it is impractical to precisely define an entrepreneur, it is challenging to
delineate an entrepreneurs role(s). Because of the vibrant environment and dynamic state of
an entrepreneur, he or she often holds and changes between several roles. Fredriksens role
however, is often portrayed as solely being an owner. This is not an entirely correct
characterization, because it undermines the leadership and managing responsibilities that are
assumed through his various directorships.
Personal(ity) characterization:
Surveys suggest that entrepreneurs have special and/or distinctive personalities (Wickham,
2006), and ultimately it is a claim that has been empirically proven. For instance, a
psychologically validated study (King, 1985) showed that there are significant differences in
personal traits between successful entrepreneurs, normal employees and non-successful
entrepreneurs.
Some researchers also note that the background of successful entrepreneurs oftentimes is
characterized by privation and hardship, and that they often are social misfits that are unable to
fit into existing situations.
Several studies (Geroiski, Mata and Portugal, 2010) indicate that start-up ventures backed by
people with university degrees have a higher probability of surviving the first years. Similar
research (Harding, 2007) note that there is a high correlation between education level (human
capital) and venture success rate, and that people with higher degrees actually are twice as
likely to achieve success as non-educated.
Hvalbye Capital Markets
2014
Different researchers (Mueller and Thomas, 2001) have focused on other aspects and
pinpointed three themes that shape creative personalities: cognitive abilities, biographical and
behavioral events. Bessant and Tidd (2011, pg. 157) have also defined three overlapping
themes - personality, thinking process and environmental factors - that together interact to
encourage entrepreneurship and innovation.
Personal characterization traits that are deemed representative of successful entrepreneurs,
include being passionate, competitive, disciplined, committed, creative, focused, exploitive,
hard-working, adaptive, energetic and motivated (Bessant and Tidd, 2011). These qualities are
strikingly similar to the impression I have formed of John Fredriksen through reading relevant
literature and watching interviews. Moreover, Fredriksens many failed attempts and business
struggles at the beginning of his career (appendix A) are solid indications of a high degree of
resilience, commitment, competiveness and drive.
Wickham stresses that entrepreneurs are often driven by a desire for self-sufficiency, prestige
and sense of achievement, even more so than the desire to make money. He asserts that it is
not the final destination of the venture that matters, but rather the journey and the process
itself (2006, pg. 222). This perspective underpins the mentality of a serial entrepreneur and
their impetus to continue to create new businesses.
Motivation is an curious aspect in the discussion of Fredriksen, whom for the last five years has
claimed that he will work until he drops (Lansdale, 2008) and that he no longer is in it for the
money, claiming that he has more than enough already (Koranyi, 2012). Fredriksen has also
directly decreed that he is motivated by the rush of doing business and making deals (Trim,
2011). Accordingly, it is easy to draw the conlusion that Fredriksen is part of a breed of
entrepreneurs that are driven by the sense of achievement. This is defined as a pull factor,
meaning that one becomes an entrepreneur on the virtue of attractiveness, cf. Wickham (2006,
pg. 102).
As far as hard-working, there is little doubt. Fredriksen has been cited saying that his
responsibilities constitutes a 24/7 job and that he is a workaholic whom works seven days a
week (Wright, 2012). An interview confirming this view made by his main business companion,
Tor Olav Trim, stated that He runs himself incredibly hard. He is extremely competitively
minded and never satisfied with his success. I remember that John's wife once said to him: Life
is not a punishment. (Christensen, 2013).
Without elaborate insight and specifics of John Fredriksens childhood, any such profiling is hard
to determine. However knowing that his middle/lower class family came from a rural area
(appendix A), conditions were likely not the greatest. I refrain from doing any psychological
profiling beyond this, but will point to his lack of higher education and humble uprising. With
this backdrop, it is easier to argue that he may hold strong cognitive abilities resulting from
genetics.
Personalities with similar entrepreneurial attributes to Fredriksen (but higher education), include
renowned businessmen such as Elon Musk (founder of PayPal and Tesla Motors), Richard
Branson (founder/owner of the Virgin Group) and Steve Jobs (deceased founder of Pixar Studios
and ex-CEO of Apple). These characters are all more household type names than that of John
Fredriksen, even though Fredriksens personal wealth, economic impact and business empire
exceed them all (on an individual basis).
Hvalbye Capital Markets
2014
The Fredriksen Formula:
This part of the assignment will focus on the characteristics of Fredriksens approach to
founding, investing in, managing and operating companies - in other words, enacting
entrepreneurship. Fredriksens methodology is remarkably distinct, but has its roots in
surprisingly simple and commonsensical thinking. Thus, I have coined the term Fredriksen
Formula in order to illuminate his approach.
Critics might argue that Fredriksen suffers from a case of so-called megalomania, a state that
oftentimes leads to value destruction caused by excessive egos of the respective
owners/managers. However, Fredriksen has repeatedly proven that is not the case, basing
expansive acquisitions and investments on conservative long-term economic research and
sound assumptions.
A PowerPoint presentation highlighting Seadrills success, sourced from Marine Moneys website,
has a slide dubbed Some reflections working with an active owner (Hemen), wherein a series
of arguments are made to illustrate the advantage of being part of the Fredriksen system
(Seadrill, 2010). My own findings are largely similar and includes factors such as focus on
growth, operational efficiency, business development, dividend emphasis, organizational agility,
industrial network and reputation.
The different components of the formula will be discussed, exemplified and analyzed in the light
of the theory in mention. I have chosen to define the factors as listed in the table of contents,
however some of the distinctions may appear to partially overlap eachother. They are not
sorted with any kind of prioritization, but are discussed in a coherent order.
Strategy and takeover targets:
According to Bessant and Tidd (2011, pg. 164-165), the ability to recognize opportunities is a
key task of a successful entrepreneur. New opportunities exist all the time, but do not
necessarily present themselves if they are not actively sought out. Fredriksen has proved highly
effective in spotting these opportunities and acting aptly upon them.
Fredriksens strategy has largely evolved around taking control over and consolidating
companies within dispersed and undermanaged industries. This was the case for Frontline,
Seadrill and Marine Harvest - along with all the affiliated subsidiaries that were absorbed
through the years. These were companies that belonged to industries plagued by dispersed
ownership, oversupply, price war conditions, together with other typical characteristics of
mature markets dynamics.
Not accidentally, another common denominator among these companies is that they all belong
within staple Norwegian industries that John Fredriksen know well and relates to.
Fredriksen (and his team) is actively screening for eligible candidates in sectors that are familiar
to him. When an appropriate target is found, the entry strategy has traditionally been to attain
majority ownership (normally between 15-45%), and leverage the position through installing
board members and dictating management. As such, Fredriksen gains operational control of a
company with a limited investment outlay and is practically able to run it like it was a private
outfit, all while retaining the benefits of a public listing.
Hvalbye Capital Markets
2014
Mergers and acquisitions:
Mergers and acquisitions (M&A) is an aspect of corporate finance and strategy that deals with
purchasing, selling, dividing and combining different companies with the aim to generate
growth.
Having pigeonholed Fredriksen as an opportunist/group-making serial entrepreneur, some
researchers (Wright et al., 1997) further differentiate based on how the group is created.
Businesses are either created through (1) organic growth and gradually expanding sales and
customers, (2) acquisitions, mergers and expansion founded deal making, or (3) a combination
of the two.
Fredriksen has largely favoured deals and M&A for expansion, and accordingly become a driving
force behind the consolidation of several industries. This means he has acquired several smaller
and isolated entities and absorbed them into his own larger companies, and thereby harvesting
the benefits of cross-company synergies, economies of scale and market power.
A key value proposition for Fredriksen has been to acquire small, illiquid public shipowning
companies that have stocks that are trading at levels that value the firm at a discount to net
asset value (NAV), i.e. market value of assets net of debt. This has been a favored method of
adding bolt-on fleet capacity to his existing operating organizations.
A rough mapping of the groups corporate transactions the past 10 years, points to in excess of
20 acquisitions and mergers followed by seven spin-offs/divestitures (Golar LNG Partners,
Seabras, NADL, Seawell and Seadrill Partners, to mention some), with a collective value in the
$25-35 billion range.
Fredriksen has demonstrated a high degree of discipline in regards to the the use of capital at
his disposal. This, and being wary of asset valuation, is the reasons he rarely overpays for an
enterprise or an asset (Trim, 2011). When pursuing a publically listed takeover target,
Fredriksens team seems to have shaped a strategy whereupon a bid is presented during a time
of suppressed stock valuation (either due to company specific factors or the macroeconomic
environment in general). This makes the (comparatively lower) price premium offered appear
more appealing and thus facilitates the acquiring of companies below their fair-value.
Fredriksens approach to M&A has supported the case for numerous acquisitions (and
divestitures) that in hindsight has proved to be incrementally value-adding to the takeover
companies.
Corporate governance:
Corporate governance refers to the system by which corporations are controlled, and specifies
the distribution of rights and responsibilities among stakeholders, such as the board of
directors, managers, shareholders, creditors, auditors and regulators. It covers issues
pertaining to transparency, integrity, accountability and ethical behavior. Although not strictly
mandatory or legislated, there is a common understanding among stakeholders that
corporations should adhere to principles of sound corporate governance (Cadbery Report,
Sarbanes-Oxley, etc.). In Norway, these principles are stipulated in the Norwegian Code of
Practice for Corporate Governance.
Hvalbye Capital Markets
2014
Although Fredriksens companies violate a number of these norms, specifically adhering to the
principles concerning nomination committees for board elections and independent board
members, it is rarely something that receives much attention. The investor community has
likely learned to look past these on-paper flaws, and accept the various firms attention to
equal shareholder treatment compensates for any non-adherence.
Fredriksen showed unprecedented awareness for fair and equal treatment of shareholders when
he, during the early 2000s, was privately offered an off-the-table sum from an institutional
investor for his shares in a rig company. Instead of accepting the premium and doing the
transaction outside the stock exchange, Fredriksen instigated a process in which the company
announced a dispersal sale where all shareholders could participate and sell their shares
(Stavrum, 2006).
This behavior contrasts Fredriksens hardball appearance and many unscrupulous corporate
raids, and instead points to the benefits of being in the same boat as him.
Fredriksens wide-spanning network of companies, assumed to be in the hundreds, is frequently
engaged in transactions with each other. This creates a situation of potential conflicting interest
between the related parties, which is another central part in the code of practice for corporate
governance.
In this regard, Fredriksen has demonstrated a great deal of ethical fortitude and refrained from
doing murky or suspicious deals. Frequently, Fredriksen places orders on new vessels and rigs
through his privately fully-owned holding companies, and then transfer the ownership of said
vessels (the title/contract) at no cost to his publically listed entities. In these events, it is
important to point out that Fredriksen easily - and absolutely legally - could have demanded a
price premium and/or an administration fee for the service. To the best of my knowledge, this
has never been the case.
Lean organizations:
Fredriksen is almost unanimously employed as chairman of the board of directors in his larger
companies. This directorship, coupled with being the largest shareholder, gives him the power
to handpick managers, dictates company strategy and have oversight responsibility.
Fredriksens boardrooms are small and efficient, and consist purely of people with core financial
and/or industrial knowledge. Accordingly, they are not burdened by employee representatives
and people with skewed incentives that are not in line with maximizing shareholder return.
This concept is extended into the corporate organization chart as well, with most organizations
being stripped of heavy corporate overhead, bureaucratic hierarchies and where many
administrative services are outsourced to third parties (especially in the case of ship
management).
Vocal Norwegian capitalist and investor, ystein Stray Spetalen, once exclaimed that
comparing the financial competencies of the boards of Cermaq and Marine Harvest is like
comparing the team lineup of Vlerenga and Barcelona. (Eikeland, 2013). In the same
interview, Spetalen examplifies the advantage by citing Fredriksen's acquisition of Marine
Harvest in 2006. Cermaq had sniffed at the company for a while, but needed to go through a
Hvalbye Capital Markets
2014
several week long decision and approval process before they could act, whereas Fredriksen and
Trim only needed a weekend to decide. Thats the difference. (Eikeland, 2013).
The same capacity was demonstrated during Seadrills 2006 purchase of Smedvig, when
Fredriksen and Trim outsmarted a much bigger American rival through their swiftness. With
Fredriksens vast cash reserve, they can commit to purchase quicker and at different scales
than others, without having to go through "troublesome" board approvals and general meetings
reconciling. In this business you have to work fast, because that is what the competitors does,
said one stock analyst in the wake of the acquisition (Bjrndal, 2006).
Overall, Fredriksens small-sized and flexible organizations, with their centrally controlled
design, allows for quick decision-making and ability to rapidly adjust in a business environment
where first-mover advantages are elementary. This unique organizational structure - rare
amongst public corporations of the same size - is one of the most fundamental reasons for the
groups success through this comparative advantage.
Responsible ownership:
The Fredriksen Group has been effective in communicating its intention as a strategic owner.
The trademark has been the premise of being a responsible and long-term stakeholder with a
strong financial backbone.
A policy of predictability and transparency is unanimously employed throughout the groups
companies, and has become a valued feature of the companies business activities.
These characteristics are highly valued in the financial markets and have forged favorable
relations with banking institutions, investors, creditors, suppliers, as well as customers.
Fredriksen once proclaimed that () were long-term players in the shipping market, of course
I was thinking about reputation (Wright, 2012), when asked why he took personal risk during
the rescue operation in Frontline. This quote highlights Fredriksens perspective and summarizes
the groups stand on enacting ownership.
Bailout capability:
The principle of responsible and active ownership extends into the idea of having the financial
capability - and more importantly, willingness - to bail out and back up ones companies during
financial distress.
This has been proven recurrently, as Fredriksen famously did with both Golden Ocean Group in
2009 and Frontline last year. These companies had been making losses for longer periods, had
negative equity, were on the verge of insolvency and had creditors knocking on the door.
Fredriksen came to the rescue by absorbing liabilities, injecting new capital and renegotiating
chartering terms with related close parties (in this case, Ship Finance International).
In the case of Frontline, Fredriksen spent almost half a billion of his private cash to rescue the
company through a swift restructuring operation. I dont like to be part of a bankruptcy ()
(Wright, 2012), is how Fredriksen explained why he acted like he did.
Hvalbye Capital Markets
2014
This type of mindset is a sought after amenity that is mostly visible among privatedly owned
family companies, but rarely seen in public corporations - even those with renowned dominating
majority shareholders.
Mutual exposure/value maximizing:
With many complimentary roles, it is easy to argue that interests are aligned within the
Fredriksen system. Because of the fact that Fredriksen on average retains ownership of about
34% in his companies (appendix B), there is a prominent source of mutual exposure. This
simple notion means that Fredriksen is the largest beneficiary of good news and performance,
as well as recipient of bad news, and therefore has the incentive to operate his companies as
efficient as possible to maximize shareholders return.
The concept of common exposure is explanatory of the favorable dividend policies, low-cost
overhead, governance and equal shareholder treatment that is employed throughout the group.
This further underpins the incentive to maximize returns for investors (which hence includes
himself), through maximizing efficiency on economic metrics, such as operating margins, tax
rate, working capital and cost of capital.
The investor community seems largely to concur with this notion. Investor and corporate raider
ystein Stray Spetalen having said that Fredriksen appreciate shareholder value. Therein lies
the key (Eikeland, 2013), and fellow shipping entrepreneur Niels Stolt-Nielsen exclaiming,
People are interested in investing with Fredriksen because he has been very fair and very good
to his shareholders (Tradewinds, 2013).
This mentality was affirmed in an interview with Fredriksens right-hand man, Tor Olav Trim,
where he postulated, you have to share with others and treat them fair, () its like investing
with Warren Buffett (Helman, 2012).
The idea that being on the same team as Fredriksen is lucrative, is thus easy to advocate.
Fredriksens standing in the financial markets, strong performance and track-record has
undoubtedly forged favorable relations with banking institutions, investors, creditors, customers
and stakeholders across the board.
Dividend focus:
A hugely favorable characteristic of Fredriksens financial management is the strong focus on
cash dividend distribution to its shareholders. This has largely become a trademark of the
Fredriksen group and has made the companies desirable among institutional investors that are
seeking consistent yield disbursements.
The recipe has been to maintain a high payout-ratio, oftentimes in the 70-90% range of net
income and sometimes even in excess of the free cash-flow. Fredriksens companies, most
notably Seadrill, are able to do this through financing capital expenditures (e.g. investing in new
drilling rigs) with external capital, such as bank loans and bond issues. Therefore, the
companies are able to maintain high dividends, after operating expenses and debt interest are
covered, through constantly re-levering the company while expanding the asset base and (as
such) future income generation capability.
Hvalbye Capital Markets
2014
The chart below illustrates the development - and obvious growth trend - in dividends (dollars
per share) paid out from Seadrill since 2008 (annually and quarterly, respectively).
Dividends provide a strong signaling effect of profitability and financial well-being, while also
commanding the companys commitment to long-term sustainability and growth.
An investigation of Cypriotic business records by Dagens Nringsliv, where three of
Fredriksens holdings companies are domiciled, showed that he collected a total of 47 billion
kroners (~ 8.2bn USD) in dividends from his companies in the course of an eight year period
(Sundnes and Ster, 2012).
Financial leverage:
Access to capital (both in the form of debt and equity) is critical for industrial development and
has been an indispensable factor in the emergence of the modern industrialized society.
Similarly, it is a widely cited founding condition for success in new entrepreneurial ventures,
confirmed by studies which document that external capital access is associated with higher
relative growth (Birley and Westhead, 1994).
The use of debt is critical in capital intensive and asset heavy industries. Fredriksen has a
tendency to leverage the equity of his companies by borrowing approximately 3-4 times more
than that of his peers. Highly leveraged capital structures involve higher risk, but also implicate
a relative increase in the return on equity.
More important than the amount of debt, is the actual cost of the debt. The profitability and
rate of return of any cash-generating project is determined by the cost of capital. A firm whose
cost of capital is relatively lower than its competitors has a comparative advantage.
Due to the groups favourable reputation and strong standing in the capital markets, its
companies are able to attain favorable interest rates and flexible terms/covenants when raising
money in the bond market and through bank funding. The groups massive footprint in the loan
books of banks, is a factor that has further forged the debtor/creditor relationship and their
mutual dependence (i.e. too big to fail).
The demand for Fredriksens debt is easily be exemplified by looking at the latest bond issue by
Seadrill, which generated much interest ascertained by a 40 percent over-subscription and an
interest rate set at a modest ~ 5.50% (6M NIBOR + 3.75%).
Hvalbye Capital Markets
2014
Fredriksen has been favoring the issuance of bonds, occasionally also participating in these
issues or buying in the secondhand market. This offers a new level of flexibility by positioning
Fredriksen on both sides of the table with the influence of being both an equity holder and
creditor. When bonds issued by the groups companies are trading at distressed levels,
Fredriksen has been known to accumulate the debt of his own company at levels far below par
value (Conrad, 2012).
Financial engineering:
A good portion of the groups strong operational performance can likely be ascribed to
disciplined balance sheet management and clever/timely use of financial markets and
instruments.
Fredriksen uses the stock market to raise equity (to pay for operating and capital expenditures)
with frequent intervals. Seadrill is a prime example of this, as it has raised equity five times
since its initial listing. Contrary to the norm, these equity issues were not executed with the
typical price discount and did not lead to noteworthy stock price declines.
When other industrial companies need to raise money, they often have to price the stock issue
at a steep discount to the last quoted stock price in order to attract sufficient investor interest.
This, and the resulting price decline that ensues to reflect the issue price, are factors that
amplify the negative sentiment surrounding stock issues in general. However, this norm appear
somewhat absent from Fredriksens companies, likely because proceeds are allocated to
projects that repeatedly has proved to generate high returns.
Fredriksen is also an avid user of the bond markets for raising capital. Illustrative of this, is
Seadrill and Ship Finance specifically, which together have nine outstanding bonds with a
nominal value of about 3.2 billion dollars (~ 19.2 billion NOK). The majority of these bonds are
traditional unsecured issues, with a couple being callable (may be redeemed before maturity
date) or convertible (may be converted into equity at a set stock price).
Further clever financial engineering include the widespread use of stock options and different
types of financial swaps. Total return swaps (TRS) are an example of this, and is a type of credit
derivative that allows a party to gain exposure to a stock without having to hold the stock on
the balance sheet. This method is popular with Fredriksen and other insiders to attain the
benefits of stock exposure (price increase and dividend) with a minimal cash outlay.
Risk willingness:
Risk is the potential that an activity will lead to a loss or undesirable outcome. Bessant and Tidd
(2011, pg. 185) define risk-taking as a tolerance towards uncertainty and ambiguity. Some
economists and theorists (such as Brinckerhoff, Shapiro and McClelland) suggest that the most
prominent function of the entrepreneur is to accept risk on behalf of others. People are risk
averse by nature and therefore willing to pay somebody to take it away, according to
Wickham (2006, pg. 10). Wickham also distinguish between personal and eceonomic risk
(2006, pg. 11), whereupon the latter is incurred when the entrepreneur makes an investment
and consequently is exposed to economic failure.
Hvalbye Capital Markets
2014
The typical entrepreneur only accept a limited amount of personal financial risk through their
minority (if anything) holdings of equity in the firm they are inviolved in. Typically when the
venture reaches a certain maturity, dedicated professional investors (venture capital funds,
private equity, institutional owners) step in to pursue the owner role. Fredriksen is different in
this regard in that he commits substantial private funds in order to maintain a significant equity
stake (calculated to be 34% on average) throughout the growth cycle of his ventures.
Another indication of the the high degree of risk acceptance within the Fredriksen system, is the
companies aggressive growth strategies and strategy execution. A prime example, is how
Seadrill ordered semi-sub drilling rigs (a ~ $600 million per unit investment) on spec,
meaning that the units are not secured future employment. The same manifestation is now
taking place in Frontline 2012, which has an orderbook of newbuildings estimated by some
analysts to reach 150-200 ships, without any certainty of the state of the markets that these
vessels will be trade in, 2-3 years from now.
The majority of all industrial companies does not undertake hundred million dollar investments
in equipment without the ability to predict and lock in future cashflow with a high level of
certainty. Transocean, the worlds largest owner of drilling rigs and Seadrills number one
competitor, has traditionally always secures long-term contracts with oil companies before
contracting yards to build new rigs.
Admittedly the shipping industry is a high-risk business by nature, yet Fredriksen is known to
raise stakes higher through generous debt use, ordering vessels when nobody else does, sailing
uninsured ships in high-risk environments, operating in highly volatile spot freight markets and
challenging the established market leaders through corporate raids and acquisition wars.
For outsiders it may appear as belligerence, but in reality, it is meticulous risk management.
Fredriksen studies events, weighs the outcomes and makes calculated decisions based on risk
perception. He is also said to push his strategy considerations down to the micro operational
level, by calculating the risks of details such as escalating maintenance costs and crew salaries
(Konrad, 2012).
Fredriksen has been quoted saying that long-term chartering is terribly boring and that its
when you make ten million dollars in a week that shipping becomes fun (Stavrum, 2006).
These statements are testaments to one Fredriksens foremost character trait as an
entrepreneur, his willingness to take on - and even embrace - risk.
A Fredriksen premium?
All of the aforementioned aspects contribute to creating a favorable perception of Fredriksens
companies among shareholders, creditors and customers. This has created a breeding ground
for suggestions whether there is an intrinsic Fredriksen premium in the stock market. In other
words, that companies within the Fredriksen sphere are priced comparatively higher compared
to their peers.
A master thesis worthy of note from the University of Stavanger, examines a similar hypothesis
and concludes that the study has failed to reveal a specific person premium related to John
Fredriksen (Voll and Huseby, 2011). The thesis nonetheless points to significantly higher
historical returns for Frontline, Golden Ocean, Seadrill and Marine Harvest, when comparing
Hvalbye Capital Markets
2014
these against five peer companies within each industry in the period 2006-2010. In the rig and
fish-farming sectors, the differences were 46% and 55% higher accumulated returns
respectively, while in dry bulk the return was 27% higher (Voll and Huseby, 2011).
Because the profitability of the mentioned companies hardly justifies the outperformance in
stock price returns, it is therefore pointed to the positive signal effect of paying dividends as
being a facilitator of the deviance.
Conclusion:
It is apparent that it is through the application of the methodology that I have dissected in this
paper, dubbed the Fredriksen Formula, that John Fredriksen has been able to achieve repeated
and duplicable entrepreneurial success.
A key factor in successfully executing business ventures is a smooth transition between the
three stages - opportunity recognition, entrepreneurial commitment and venture credibility -
dubbed critical junctures by Bessant and Tidd (2011, pg. 171). Fredriksen appear to be able
to pool these processes together in an implementation system comprised by trusted associates
and related parties (directors, managers, financers, shipyards, etc.). His experience, aptitude,
insight and ability to synthesize industrial knowledge, has given Fredriksen an image in which
commitment (he is heavily invested) and credibility (he already has a solid track-record) have
become less essential.
Further to this point, it is said that serial entrepreneurs - with their special focus on the start-up
phase of the venture - have unique decision-making abilities in the area of business
development. Wickham (2006, pg. 38) argues that these skills include being able to spot
opportunities, evaluate markets and deal with financial backers. Interestingly, the final slide of
the aforementioned (pg. 13) PowerPoint presentation concludes similarily, with the author
claiming that Seadrills success story is really a story of what owners, management and capital
markets can achieve when working together (Marine Money, 2013).
Exercising entrepreneurship is precisely this - the ability to bring people, money, resources and
ideas together in order to act on business opportunities. Excelling in this capacity, together with
an exceptional risk-willingness, fair-mindedness and a value maximizing mindset, is
undoubtedly the foundation of Fredriksens unprecedented success. Fredriksens billions and the
rapid growth of his fortune stands out as a testament to the success story.
Fredriksens entrepreneurial framework has been the foundation of the creation of globally
recognized investment vehicles within sectors that historically have been shunned by
institutional investors due to the inherent risks and cyclicality.
Shipowning and the maritime industry are highly volatile and cyclical industries, accordingly
fortunes are erased as easily as they are created. Famous Norwegian shipowner Hilmar Reksten
is a good example of this. Reksten had the worlds largest supertanker fleet and ranked among
the worlds richest during the oil tanker boom years of the 1970s. Approximately five years
later, he was personally bankrupt and wound up passing with a net debt load (supposedly) in
excess of 100 million (Tenold, 2002).
Hvalbye Capital Markets
2014
The lesson learned from this, is that the capability to conserve wealth is key. This is likely the
main motive behind Fredriksens aggressive dividend disbursements that has facilitated cash
accumulation and diversification into non-shipping sectors, such as fish-farming (Marine
Harvest), debt collection (Aktiv Kapital) and oil trading (Arcadia Petroleum).
This has proved a sound strategy as it has given the group more legs to stand on while certain
sectors experience a downturn. Equally important, it enables the group to store cash that can
be invested at any moment in any cycle and during times of suppressed asset pricing.
Fredriksens continued success going forward, will be persistent ability to create shareholder
value by identifying embedded value and having the resources to quickly extract such value and
put it to work in an existing and well-functioning entrepreneurial framework.
Appendices:
Appendix A: John Fredriksens biography (text)
Appendix B: Company portfolio ownership overview (spreadsheet)
Appendix C: Aggregated ship fleet overview (spreadsheet)
Hvalbye Capital Markets
2014
References:
Regina Asariotis, Hassiba Benamara, Hannes Finkenbrink, Jan Hoffmann, et.al.; (2011); Review
of Maritime Transport 2011; United Nations Conference on Trade And Development (UNCTAD);
Geneva
Are Rodahl Hvalbye; (2013); John Fredriksen Norways Greatest Entrepreneur?; Handelshyskolen BI; Oslo
Rasmus Bgh Holmen, Christian Melbye, Leo Grnfeld; (2012); Norsk verdiskaping p havet:
The Seatankers Group og John Fredriksens bidrag til verdiskaping i norsk konomi; Menon
Business Economics; Oslo
Gunnar Stavrum, Odd Harald Hauge; (2006); Storeulv - en uautorisert selvbiografi om John
Fredriksen; Gyldendal; Oslo;
Christer Voll, Tom-Andr Huseby; (2011); Verdsettelse av Seadrill Limited - Finnes det en John
Fredriksen premie i aksjemarkedet?; Universitetet i Stavanger (UiS); Stavanger
Philip A. Wickham; (2006); Strategic Entrepreneurship Fourth Edition; Pearson Education;
Essex
Richard Blundel, Nigel Lockett; (2011); Exploring Entrepreneurship Practices and Perspectives;
Oxford University Press
John Bessant, Joe Tidd; (2011); Innovation and Entrepreneurship Second Edition; John Wiley &
Sons; West Sussex
J. Chris Leach, Ronald W. Melicher; (2012); Entrepreneurial Finance 4th Edition; South-Western
Cengage Learning; Colorado
Bonn; Marco Caliendo, Alexander S. Kritikos; (2007); Is Entrepreneurial Success Predictable?
An Ex-Ante Analysis of the Character-Based Approach; Institute for the Study of Labor (IZA)
Ole G. Stenshagen; (2012); Frontline 2012: One for the connoisseur; SEB Enskilda; Oslo
Hvalbye Capital Markets
2014
Christopher Helman; How Shipping King John Fredriksen Found A Port In The Storm; Forbes Magazine; April 9, 2012
Erik Haavaldsen, Jonas Advocaat Kraft; (2013); Frontline 2012: Research report: Follow the
tycoon-track; Pareto Securities; Oslo
Birley Sue, Paul Westhead; (1994); A Taxonomy of Business Start-Up Reasons and Their
Impact on Firm Growth and Size, Journal of Business Venturing; Amsterdam
Robert Wright; Fredriksen seizes new chance with enthusiasm; Financial Times; February 12, 2012
Stig Tenold; (2002); The Harder They Come Hilmar Reksten from Boom to Bankruptcy; The Northern Mariner, rgang 11
John Gorham; Viking Raider; Forbes Inc.; February 30, 2001
Michael Kirton; (2003); "Adaptation and innovation in the context of diversity and change ";
Routledge; London
Alaric Nightingale; "Frontline, World's Biggest Supertanker Operator, Sees `Huge' China
Imports; Bloomberg News; November 12, 2010
Irene Ang; Expanding Frontline 2012 behind Cosco LR2 tanker deal; TradeWinds News; July 10, 2013
Balazs Koranyi; Tycoon Fredriksen on ship buying spree; Reuters News; May 8, 2012
Bente Bjrndal; SeaDrill/Smedvig blir strste riggselskap utenfor USA; Offshore.no; April 3,
2006
Edward Robinson, Michelle Wiese Bockmann; Shipper Uses Gut in $11 Billion Bet Worst Since 70s Ending; Bloomberg BusinessWeek; September 10, 2012
Wright M., Robbie K., Ennew C.; (1997); Venture capitalists and serial entrepreneurs; Journal of Business Venturing, Vol. 12; Philadelphia
Spencer Starr, Willy Olsen; Fredriksens Seadrill enters battle for Smedvig; Platts OilGram News; January 5, 2006
John Conrad; From Broke To Billions Risk Management, Efficiency And The Secret To Success; gCaptain.com; June 12, 2012
Trond Sundnes, Kjetil Ster; Her fant Dagens Nringsliv 47 milliarder; Dagens Nringsliv; November 8, 2012
Ole Eikeland; - Han slipper alt tyset andre m gjennom; Nringslivsavisen NA24.no; May 23, 2013
Bibi Christensen; Globalt portrt: Norges Onassis; Berlingske Tidende; August 31, 2013
Marine Harvest ASA; Morpol - A milestone for the Marine Harvest Group; press release; October 1, 2013
Hvalbye Capital Markets
2014
John C. Conti, Paul D. Holtberg, Joseph A. Beamon, et.al.; (2013); Annual Energy Outlook
2013; U.S. Energy Information Administration, Washington DC
Seadrill ASA; The Seadrill Success Story; company presentation; June 24, 2010; retrieved from: http://www.marinemoney.com/sites/all/themes/marinemoney/forums/MMWeek10/Th
ursday%20Marine%20Money/Seadrill_Marine_Money.pdf
Andrew Lansdale; Empire builder; Fairplay, The International Shipping Weekly, Vol. 362; March 13, 2008; London
Amy S. King; (1985); Self-analysis and assessment of entrepreneurial potential; Simulation &
Games Vol. 16; Sage Publication; New York
Tor Olav Trim; Next Generation Shipping; opening conference speech; Nor-Shipping 2011; Lillestrm; Thon Hotel Arena; May 24, 2011
Geroski, P.A., Mata, J. & Portugal, P.; (2010); Founding conditions and the survival of new
firms; Strategic Management Journal; Chicago
TradeWinds; Bloomberg.com; DN.no; Reuters.com; Newsweb.no; Wikipedia.org; et cetera.
Appendix A:
John Fredriksen (68) - with monikers Big John, Big Wolf, Tanker King, Last Viking, et
cetera - was born on the 11th of May 1944 in the small municipality of Eidsvoll by parents
Gunnar Fredriksen and Herdis Johanne rbk. The family moved to the working class area of
Oslo, Vlerenga, when John was three years old and at which point his parents were employed
as a welder and canteen manager, respectively.
Barely 17 years old, John dropped out of high school and started working as courier for the
shipbroking firm, Blehr & Tenvig. Five years later Fredriksen started as a shipbroker for a
different brokerage firm specializing in oil tankers. This marked the start of his shipping career,
where he climbed the ranks to become chief of Wallem & Co in Singapore, until British interests
acquired the firm in 1969. John returned to Oslo starting as a broker again for Anco Tanker
Service, where he became renowned for his efficient work style characterized by fast decisions
and quick gains.
Fredriksen attained a wide-stretching network of industry contacts through his various job
positions. Observing how he was making his shipowning clients rich through lucrative chartering
contracts, he realized there was more money to be made on the other side of the table. As
such, 28 years old, he started his first business venture becoming a shipowner in a partnership
with colleagues. The single-ship outfit, dubbed Dominion Shipping, evolved around a WW2-era
Liberty cargo ship that was contracted to carry cement to Nigeria. However, issues pertaining to
unloading permits and bribes drove the company into bankruptcy shortly after its inception.
On a sidenote, it is quite interesting to note that many other famous shipping entrepreneurs,
such as Aristotle Onassis, Stavros Niarchos and several other Greek shipowners also started
their careers with the plentifully available post-war Liberty ships.
Hvalbye Capital Markets
2014
Fredriksens second entrepreneurial attempt, Scanbulk, was a partnership that operated a
container ship in the Caribbean. This company was also ill-fated due to costly mechanical issues
with the ship. The next business venture was World Shipping, where Fredriksen and his
partners were trading in bunker oil (ship fuel). This outfit was Fredriksens first personal
business success, however the profits were reinvested in shipping stocks just before a major
equity market crash wiped out the gains.
The aforementioned endeavors took place simultaneously with a successful career at Anco
where he was active fixing attractive contracts in the Mediterranean and Persian Gulf during a
politically instable period. Fredriksen was not held back by the several failed business attempts,
and having experienced the advantage of sharing risk during distress, he quite adversely
decided to start up a new outfit entirely by himself. As such, the two Liberia-based companies,
Northern Tankers Inc. and Ocean Tanker Co. Inc., were brought to life in 1971.
As chief of the tank department of Joachim Grieg & Co., Fredriksen witnessed an unprecedented
bull market in the oil tanker freight rates followed by a total collapse sparked by the oil crisis
and embargo of 1973. During this down period, Fredriksen saw an opportunity to establish yet
another company, and thus Northern Shipping was born. This was a brokering firm, in which
Fredriksen leveraged on his Arab contacts (from previous employers) in need of tonnage
through coupling them with Ocean Tanker Co. - Fredriksens own shipowning outfit, which in
turn sub-chartered oil tankers at all-time low rates.
In 1981, the company purchased its own ships, two chemical tankers and an oil tanker, but
struggled to make money in a period of volatile freight rates. Yet another newly formed entity,
Marine Management, acted as operator and manager for the fleet.
Again Fredriksen illustrated his risk willingness and in the eyes of some - cold and
unscrupulous behavior, through operating his ships in politically delicate areas such as
Apartheid South-Africa, Iran during the Iran-Iraq War, Syria during the Yom Kippur War and
Lebanon. Some ascribed Fredriksens involvement with Iran as effectively being the lifeline of
the Ayatollah during the eight-year long war. The involvement in the Arab Gulf was extremely
risky for ships as well as personnel, yet the extreme rate-levels attainable more than
compensated for the risks. Nine of Fredriksens un-insured tankers were hit by Iraqi anti-ship
missiles that in turn killed three and wounded five crewmembers.
During this period, Fredriksen was also framed for embezzling crude oil from his customers
cargo in order to blend with bunker fuel in a highly explosive mix with the purpose to save on
fuel costs. This is a widely disputed chapter in Fredriksens life that got him jailed for a four-
month period, charged with cargo theft and insurance fraud. This in turn led to sour relations
with banks and financers whom forced the sales of vessels and ultimately liquidation of his
company. These series of events left John with great distaste towards Norwegian authorities,
and are attributed to later having shaped decisions such as changing citizenship and flagging
out ships and companies.
However, John Fredriksen once again rose from the ashes, achieving great success through so-
called asset play, whereupon he timed purchases of used vessels and contracting of newbuilds
that was quickly followed by resale. This activity steered Fredriksen into oil drilling rigs and the
Hvalbye Capital Markets
2014
oil service industry, which later resulted in the creation of Seadrill.
In 1996, he started purchasing shares in the Swedish-listed shipowner Frontline, which
Fredriksen categorically grew into what became the worlds largest owner of oil tankers through
a series of acquisitions, mergers and divestitures. Three years later, Frontline had 43 tankers
with a combined tonnage of eight million deadweight tons (dwt). After absorbing ICB and
Golden Ocean, Fredriksen was officially the worlds largest tanker owner in 2000.
Fredriksen has been widowed ever since his wife, Inger Katharina Astrup (56), died from cancer
in 2007. They had been together since 1973 and were parents of twin daughters, 28-years old
Cecilie and Kathrine. Fredriksen renounced his Norwegian citizenship in 2006 and has official
address in Cyprus, but maintains real estate in London, Marbella, Cyprus and Nttery.
John Fredriksen has always been publicity shy and secretive, but is irrespectively frequently
portrayed in the media due to his vocal business decisions and wide stretching business empire.
Not seldomly, Fredriksen is portrayed with an undeserved unsympathetic approach. During his
activity in buying up Swedish shipowners during the 1990s, journalists were characterizing him
as a full-fledged gangster with hard hands, philistine way of life and a generally unpleasant
person (SNL, 2013).
More recent press coverage have been increasingly favorable, with Fredriksen being named in
Bloomberg Markets' esteemed 50 Most Influential People and attaining 1st place in shipping
journal TradeWinds Power List 100, that ranks the most significant people in the shipping
industry.
Hvalbye Capital Markets
2014
Appendix B:
Company Sector Est. Listing HQ EmployeesMarket cap OwnershipHolding value Holding entity
Seadrill Rig owner 2005 NYSE/OSENorway 6 650 $21 524 450 000 24,00 % $5 165 868 000 Hemen Holdings
Golar LNG Shipowner 2000 NASDAQ Bermuda 536 $3 184 000 000 47,00 % $1 496 480 000 World Shipholding
North Atlantic Drilling Rig owner 2011 OTC Bermuda 1 194 $2 320 000 000 19,50 % $452 400 000 Seadrill
Marine Harvest Fishfarming 2005 OSE Norway 7 025 $4 178 540 000 25,00 % $1 044 635 000 Geveran Trading Co.
Frontline 2012 Shipowner 2012 OTC Bermuda 1 $1 491 000 000 58,00 % $864 780 000 Hemen Holdings
Arcadia Petroleum Oil trading 1988 Private London 100 $1 600 000 000 49,00 % $784 000 000 Farahead Holdings
Ship Finance International Shipowner 2003 NYSE Bermuda 7 $1 582 010 000 41,00 % $648 624 100 Hemen Holdings
TUI AG Travelling 2002 FWB Germany $2 674 242 270 15,00 % $401 136 341 Monteray Enterprises
TUI Travel plc. Travelling 2007 LSE England $5 282 192 000 5,37 % $283 653 710 Monteray Enterprises
Aktiv Kapital Debt collection 1997 Delisted Norway 485 $241 800 470 100,00 % $241 800 470 Geveran Trading Co.
Golar LNG Partners Shipowner 2011 NASDAQ Bermuda 175 $1 838 700 000 31,98 % $588 016 260 Golar LNG
Golden Ocean Group Shipowner 2004 OSE Bermuda 220 $675 117 660 41,00 % $276 798 241 Hemen Holdings
Archer/Seawell Oil service 2008 OSE Houston 8 498 $554 521 865 23,32 % $129 314 499 Seadrill/Hemen Holdings
Northern Offshore Rig owner 2000 OSE Bermuda $291 201 870 34,00 % $99 008 636 Geveran Trading Co.
Deep Sea Supply Shipowner 2005 OSE Cyprus 585 $216 142 320 40,00 % $86 456 928 Hemen Holdings
Frontline Shipowner 1996 NYSE/OSEBermuda 1 897 $164 280 000 35,00 % $57 498 000 Hemen Holdings
Fred Olsen Production Shipowner 1994 OSE Norway $153 101 600 9,80 % $15 003 957 Geveran Trading Co.
Knightsbridge Tankers Shipowner 1996 NASDAQ Bermuda $179 610 000 4,70 % $8 441 670 Frontline
Independent Tankers Corp. Shipowner 2008 OTC Bermuda $1 272 027 39,00 % $496 091 Frontline
Total market capitalization:$48 152 182 082 33,82 %
Total equity wealth: $12 644 411 902
Core companies: $12 286 173 944
Non-core: $358 237 958
Gulfstream G550 $63 500 000
The Old Rectory $245 000 000
stre Movik Farm $11 600 000
Cash deposits $2 950 000 000
Total estimated wealth: $15 914 511 902
Hvalbye Capital Markets
2014
Appendix C:
Hvalbye Capital Markets
2014
Type Vessel name Shipowner Manager Flag state Year builtHull DWT Capacity Status Order value Shipyard
Suezmax Altair Voyager Independent Tankers Corp. Bahamas 1993 DH 135 829 Sailing Ishibras
Capesize Battersea Knightsbridge Tankers Marshall Islands 2009 DH 170 500 Sailing Daehan
LNGC Bear Golar LNG 2014 95 000 160,000 m3 On order Samsung Heavy Ind.
Capesize Belgravia Knightsbridge Tankers Marshall Islands 2009 DH 170 500 Sailing Daehan
VLCC British Pride Independent Tankers Corp. Isles of Man 2000 DH 307 000 Sailing Samsung Heavy Ind.
VLCC British Progress Independent Tankers Corp. Isles of Man 2000 DH 307 000 Sailing Samsung Heavy Ind.
VLCC British Purpose Independent Tankers Corp. Isles of Man 2000 DH 307 000 Sailing Samsung Heavy Ind.
Panamax Cap Salinas Ship Finance Int. 2013 70 000 4,800 TEU Sailing
Panamax Cap Saray Ship Finance Int. 2013 70 000 4,800 TEU Sailing
Panamax Cap Serrat Ship Finance Int. 2013 70 000 4,800 TEU Sailing
Panamax Cap Sorell Ship Finance Int. 2014 70 000 4,800 TEU On order
LNGC Celsius Golar LNG 2013 95 000 160,000 m3 On order Samsung Heavy Ind.
Capesize Channel Alliance Golden Ocean Group V. Ships Hong Kong 1996 171 978 NKK
Capesize Channel Navigator Golden Ocean Group V. Ships Hong Kong 1997 172 058 NKK
LNGC Clacier Golar LNG 2014 95 000 160,000 m3 On order Samsung Heavy Ind.
ULCV CMA CGM Corte Real Ship Finance Int. U.K. 2010 156 898 13,800 TEU Sailing
ULCV CMA CGM Magellan Ship Finance Int. U.K. 2010 157 254 13,800 TEU Sailing
Suezmax Cygnus Voyager Independent Tankers Corp. Bahamas 1993 DH 156 836 Sailing IHI
VLCC DHT Eagle Bahamas 2002 DH 309 064 Sailing Samsung
FSRU Eskimo Golar LNG 2014 95 000 160,000 m3 On order Samsung Heavy Ind.
Suezmax Everbright Ship Finance Int. Marshall Islands 2010 DH 156 000 Sailing
Suezmax Front Ardenne Ship Finance Int. V.Ships NO Marshall Islands 1997 DH 149 999 Sailing Hyundai
VLCC Front Ariake Ship Finance Int. Thome Isles of Man 2001 DH 298 530 Sailing Hitachi
Suezmax Front Brabant Ship Finance Int. V.Ships NO Liberia 1998 DH 149 999 Sailing Hyundai
VLCC Front Cecilie Frontline 2012 Frontline Mngmt. AS Hong Kong 2010 DH 297 000 Sailing SWS
VLCC Front Century Ship Finance Int. ITM Marshall Islands 1998 DH 311 189 Sailing Hyundai
VLCC Front Champion Ship Finance Int. ITM Bahamas 1998 DH 311 286 Sailing Hyundai
VLCC Front Circassia Ship Finance Int. V.Ships NO Marshall Islands 1999 DH 306 009 Sailing MHI
OBO Front Climber Frontline Singapore 1991 SH 169 178 Sailing
VLCC Front Comanche Ship Finance Int. SeaTeam Isles of Man 1999 DH 300 133 Sailing Hitachi
VLCC Front Commerce Ship Finance Int. ITM Isles of Man 1999 DH 300 144 Sailing Hitachi
VLCC Front Commodore Frontline V.Ships DE Liberia 2000 DH 298 620 Sailing Hitachi
VLCC Front Destiny (J0025) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan
VLCC Front Dragon (J0026) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan
VLCC Front Dream (J106) Frontline 2012 2013 DH 320 000 Sailing Jinhaiwan
OBO Front Driver Frontline Marshall Islands 1991 SH 169 177 Decommissioned?
VLCC Front Dynamic (J0027) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan
VLCC Front Dynasty (J0028) Frontline 2012 2012 DH 320 000 Sailing Jinhaiwan
VLCC Front Eminence Frontline 2012 Frontline Mngmt. AS Marshall Islands 2009 DH 321 300 Sailing Daewoo
VLCC Front Endurance Frontline 2012 Frontline Mngmt. AS Marshall Islands 2009 DH 321 300 Sailing Daewoo
VLCC Front Energy Ship Finance Int. V.Ships NO Cyprus 2004 DH 305 318 Sailing Hyundai
VLCC Front Falcon Ship Finance Int. Thome Bahamas 2002 DH 308 875 Sailing Samsung
VLCC Front Force Ship Finance Int. Thome Cyprus 2004 DH 305 422 Sailing Hyundai
Suezmax Front Glory Ship Finance Int. V.Ships UK Marshall Islands 1995 DH 149 834 Sailing Mitsui
OBO Front Guider Ship Finance Int. Singapore 1991 SH 169 146 Scrapped $9 100 000
VLCC Front Hakata Ship Finance Int. SeaTeam Isles of Man 2002 DH 298 465 Sailing Hitachi
VLCC Front Kathrine Frontline 2012 Frontline Mngmt. AS Marshall Islands 2009 DH 297 000 Sailing SWS
Suezmax Front Melody Frontline V.Ships DE Liberia 2001 DH 149 99