HUNGARY: Oil and gas company MOL says it intends continued expansion in former Soviet countries and is opposed to OMV take-over

Record ID: 837242

  • Title: HUNGARY: Oil and gas company MOL says it intends continued expansion in former Soviet countries and is opposed to OMV take-over
  • Date: 17th August 2007
  • Summary: (CEEF) VECSES, HUNGARY (FILE, 2006) (REUTERS) VARIOUS OF GAS PLANT OF MOL WITH PIPELINES AND GAS PRESSURE METERS
  • Embargoed: 1st September 2007 13:00
  • Keywords:
  • Location: Hungary
  • City:
  • Country: Hungary
  • Topics: Domestic Politics,Energy
  • Reuters ID: LVAA7292YAS8GAQM5K82SRGY5M5A
  • Aspect Ratio:
  • Story Text: Hungarian oil and gas company MOL says it intend to keep expanding its assets and look for new opportunities in former Soviet countries. A top executive of the company spoke to Reuters as MOL continues to be the target of a hostile take-over bid from Austria's OMV.
    Hungary's largest company, MOL, says it plans to expand existing assets and seek to enter new business in regions where it is already present, a top executive told Reuters on Wednesday (August 15).
    The oil and gas company, itself the target of a hostile take-over by Austria's OMV, will continue to look for upstream assets, mainly in the former Soviet Union, managing Director for Exploration and Production, Zoltan Aldott, said.
    "Primarily in Russia, Kazakhstan but other places too, such as northern Africa and the near East," Aldott said.
    "As far as our other activity is concerned, we have achieved a very strong position which cannot be ignored, in the areas of refinery and trade. We can obviously increase this with further new countries, primarily deepening relations with INA, and possibly taking part in the Serbian privatisation. At the same time we can only get significant growth if we can add new markets to these," he added.
    But Aldott says the company will be looking for relatively small assets, which attract less political interest, making purchases easier.
    MOL has been in the media limelight for several months, because of OMV's continuing bid for the company.
    The two firms have been at loggerheads since June, when OMV nearly doubled its stake in MOL, Hungary's biggest revenue earner and exporter, to 18.6 percent without prior notice and proposed closer ties.
    MOL rejected what it said was an unsolicited approach, saying it did not represent a compelling business proposition for shareholders and began aggressively buying back its own stock to fend off a potential bid.
    Analysts say MOL now controls about 38 percent of its stock through options, treasury shares and other financial vehicles.
    MOL holds more than 80 percent share of Hungary's wholesale fuel market, while MOL and OMV account for over 50 percent of the retail market.
    The two firms also own the three biggest refineries in central Europe, and MOL owns chemical producer TVK.
    OMV has repeatedly denied the take-over bid was hostile. In a statement to Reuters OMV said there had been talks between the two parties about a potential partnership for more than five years.
    "This was no secret for the managements. On the other hand, the purchase of the MOL shares was a normal market transaction, immediately disclosable - which is what OMV did. The shares were available, and as a strategic investor we did not want the shares going to another party,"
    the statement said.
    "It is clear to OMV that consolidation within the region is coming over the next few years. Clearly, it is the right thing for the region to have a regional energy champion that can ensure security of supply. In addition, the shared strengths of both MOL's downstream assets and OMV's upstream growth potential and assets, together with significant synergy benefits will deliver superior shareholder value to both sets of shareholders," the statement continued.
    But MOL says combining with OMV would be both value destructive and harmful to the region.
    "Any combination that would affect our businesses, primarily the refinery and trade, is practically dominant, and not only dominant but can lead to a monopoly situation in the region. This would mean that it would require such intervention from a regulatory point of view which would not add value but take away significant value, thus destroying value," Aldott said.
    Any merger between the two companies would create a regional monopoly and Hungarian competition authority GVH would be likely to object to the deal.
    OMV has not yet requested permission for the merger either in Hungary or from the European Commission. Due to the size of the deal, it would be handled from Brussels.
    The independence of MOL and OMV is an important condition of competition in the region, given that MOL controls Slovakia's Slovnaft and OMV has a majority in Romania's Petrom and may buy Serbia's NIS.
    Analysts say that most shareholders and investors would find the fusion risky.
    "At present the investors' opinion is that this would have serious competition policy concerns," said Peter Tordai, KBC's oil and gas sector analyst.
    "If this merged new company had to sell one of the refineries then it would destroy a significant value from the point of the view of the overall company and this is a very serious concern of the markets at present against this fusion. If it happened then presumably Russian companies would be the buyers. If the Danube or Bratislava refinery would be sold by OMV then presumably the Russian companies would appear as buyers. Just think about it; here such a refinery could go into Russian hands which is located right in the Friendship pipeline. This would be the first time that Russian companies could get such a refinery and they could directly supply it with oil," he added.
    The Hungarian government has also stepped in to make it clear it is against the deal.
    "Where we are now is that everyone is weighing up the political risks, what risks this deal may have for Hungary and even Slovakia. As long as no political decision is made it is largely theoretical to speak about potential synergies and where savings can be made and what it means for the customers. I think that this potential fusion has global security risks. And I think politics must first clarify these, and when this strategic decision is made in either a positive or negative way, then we can talk about the potential synergies," Tordai said.
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