The US President, Donald Trump’s offer to purchase Greenland hits a nerve in Denmark. James Thurkettle, Corporate Finance Executive looks behind the headlines, and asks what it takes to purchase a country in modern times.
US President, Donald Trump recently floated the idea of purchasing Greenland from Denmark for strategic purposes. This bizarre offer was quickly shot down by the Danish Prime minister, Mette Frederiksen, who stated “Greenland is not for sale. Greenland is not Danish. Greenland belongs to Greenland”.
For those who don’t know, Greenland is a self-governed, autonomous region of the Kingdom of Denmark, with a population of just 56,000 people.
So why Greenland I hear you ask? For one, Greenland is home to some of the world’s largest deposits of rare metals and minerals including dysprosium, neodymium, praseodymium, terbium, uranium and also the by-products of zinc.
The other key attribute of Greenland for the purposes of the US is that it represents a strategic military point between the US and Europe (and more importantly Russia). The US Air Force already has a presence in Greenland by way of the Thule Air Base, however, clearly the US would like a greater presence there going forward.
You may be forgiven for thinking that this is the first time that the US has attempted to purchase a country or even specifically Greenland for that matter. In fact, the US actually has a history of country acquisitions in its portfolio. In 1867, President Andrew Johnson paid $7.2m to Russia for Alaska and in 1917, President Woodrow Wilson bought the Danish West Indies for $25m, renaming them the US Virgin Islands.
So why did the offer get refused so quickly? The reality is that the offer was very controversial and to some was even taken as a potential joke due to the lack of formal documentation and the methods chosen to communicate the offer, which was made via social media. There are also numerous factors that could impact on whether the deal could ever be possible in the future. Should it be attempted again, in a more formal manner?
Firstly, in the world of corporate finance and acquisitions, the art of valuations is becoming increasingly specialised, but where would you start with valuing a country? The Financial Times, in a mock assessment of Trump’s bid, placed a value of $1.1tn on the combined value of Greenland’s mineral and defence assets alone. How would a formal offer from Trump compare to this valuation? Is there an element of goodwill?
Another key aspect of any acquisition is of course the negotiations. Trump has an extensive commercial background so it would be fair to assume that he would be a champion in the field of negotiations, however, his recent offer has only led to offending both the Danish and Greenlandic people which doesn’t bode well for the possibility of opening negotiations around the purchase of Greenland any time soon or in the future.
This only begs the question, if Donald Trump is serious about the possibility of acquiring Greenland, should he consider obtaining professional advice from corporate finance advisors to provide a realistic valuation along with experienced, less controversial negotiations?
This situation highlights the importance of using/obtaining professional advice which is readily available and can be summed up with the following saying; “If you want to take out a screw, you choose a screwdriver, not a hammer. This doesn't mean hammers are "stupid". They're great at driving nails. They're just ill-equipped for removing screws.”