Political wrangles behind Nordic split - Company Business and Marketing

CommunicationsWeek International, Jan 17, 2000 by Emma Mcclune

Just three weeks after the explosive news of the Telia-Telenor merger bust-up, Nordic executives from both sides are considering partnering with alternative international operators--the Swedes looking to the United States and the Norwegians negotiating with BT in the United Kingdom.

But what caused the collapse of the deal to create the third-largest telecoms operator in Europe?

"It's all likely to go down in history as a rather silly quarrel over the location of Newtel's mobile division," said Richard Leer-Spencer, director of International Telecommunication Consultants' Stockholm office. "But what we have here is a string of political blunders, two radically different business cultures and rampant mistrust on both sides of the equation."

Newtel AB was choked to death in the boardroom last December when its board reached a four-against-four deadlock over the location of the merger's mobile unit: although the board comprised 12 members, only eight took part in the mobile location vote. Using his casting vote, chairman Jan-Ake Kark--the former Telia chief executive who has since been reappointed (see page 35)--insisted on basing the unit in Stockholm; the Norwegians, who wanted the unit situated in Norway, took issue.

Erik Knive, director of telematics at Teleplan, in Oslo, and an adviser in the merger proceedings, said the problem arose from two different interpretations of the shareholders' agreement.

"According to the Swedes, the chairman of the board had the casting vote. But according to Telenor's company by-laws, in issues relating to national interests a Norwegian should have the casting vote. This clause was obviously not discussed adequately beforehand," he said.

Daag Melgaard, spokesman for Telenor, sees things differently. "From our side we see the break-up as more their fault," he said. "The written shareholder agreement between the two sides is the one the Norwegian side has always stuck to, without trying to renegotiate or re-interpret it, which the Swedes have done all along."

After the boardroom disaster, the Norwegians sent a formal request to the Swedes for a promise to stop tinkering with the meaning of this agreement. When we did not receive an answer, we decided to annul the alliance," said Melgaard. That the whole deal could be blown apart over such a minor issue indicates a deeper degree of misunderstanding on both sides, he said.

"The Swedes have all the time seen it as a takeover, and presumably never accepted this. From the outset the Swedes saw this as an exercise in getting as much money as possible quickly, whereas the Norwegians saw it in terms of industrial growth," Melgaard said.

One thing that everyone agrees on is that politics played too great a role in the affair. "The whole thing has been toppled from the top," said Melgaard. "And as both companies are owned by their respective states, the quarrel became one between the two ministries."

Speak to the Swedes, however, and they will tell you that the Norwegians were too powerfully influenced by their politicians.

"In Sweden we are not used to having politicians so involved. Norwegians are more political. We saw the merger strictly from a business point of view. For the Norwegians, it was more of an industrial/political thing," said Marianne Laurell, press officer at Telia.

Teleplan's Knive sees the huge differences in corporate culture as a "substantial and largely underestimated" cause of the break-up.

"We've seen this in other mergers between Sweden and Norway, where management differences have been a major hurdle in integration. What we have in Norway is a more distributed management process; decisions happen lower down. The Swedes are used to more hierarchical structures, with decisions being made on the executive level," knive said.

And in the Norwegian press, Telenor chief executive Tormod Hermansen has complained that the Swedish unions were too influential in executive decisions.

Extracting the two companies from the merged Newtel has been a legal nightmare. Both companies have been re-registered as telecoms operators, both have voted in their board members and reinstalled their respective chief executives td their old posts.

According to both Telenor's Melgaard and Telia's Laurell, the out-of-pocket expenditures totted up by both sides is close to 200 million Norwegian kroner ($25 million), including legal costs incurred in breaking up, consultants' fees, designer fees and general expenses.

But looking at it in terms of market value, some put the losses much higher. "We say in NorWay, that's just a piece of the sausage, said Knive, who estimated that Telenor alone lost out on NKr4O billion-50 billion ($5 biilion-6.2 billion) in the break-up, on the basis of the valuation of the merger.

"Given the backdrop to this story, you've got to admit that success never seemed likely," said Leer-Spencer. The first warning sign came two years ago at the start of the talks when Norway's leading political party decided to stop the negotiations. In a controversial move, Hermansen took his ideas to Norway's opposition party, which wanted to go further with the talks. In a matter of weeks, Hermansen and then-head of Telia, Lars Berg, cobbled together a rough package which saw Telenor taking 40% and Telia 60% of the venture.