August 7th, 2008

European Commission closes door on OMV-MOL merger plan

Though Hungarian oil and gas company MOL and the Hungarian state took extraordinary measures to fend off an attempted hostile takeover by Austrian peer OMV started more than a year ago, it was the European Commission’s conditions on a potential merger between the two companies that put an end to OMV’s plans.

OMV said on Wednesday it decided to withdraw its merger notification with Brussels after the Commission said it would not accept conditions for the deal proposed by OMV and other conditions would be unacceptable.

OMV announced on June 25, 2007 that it had raised its stake in MOL from around 10pc — the limit on voting rights in the company charter — to 18.6pc. OMV said it wanted to start a dialogue with MOL’s management, but the management firmly rejected the advance on the same day.

Two days later, Hungarian Prime Minister Ferenc Gyurcsany called OMV’s move a hostile takeover and promised to use all available measures to stop it.

In spite of the voiced opposition, MOL’s share price rose sharply on speculation of a buyout. The share gained more than 6pc to 27,605 on the day of OMV’s announcement and it shot up to 30,000 on the following day.

In a move to defend against advances by OMV, MOL’s management started making massive treasury share purchases and lending the shares or placing them with strategic partners. MOL lent shares to OTP Bank and MFB Invest and it placed shares — though with options to reclaim them — with Czech energy giant CEZ and Oman Oil Company, with whom MOL said it was forming strategic partnerships. With the transactions, MOL’s management gradually gained a degree of control over about 40pc of the company’s shares.

OMV’s CEO said the transactions made MOL’s management “quasi owners” of the company, and OMV even took MOL to court over the exercise of voting rights attached to the shares at its AGM.

MOL, in turn, sued OMV for defamation.

MOL’s share price fell after the initial speculation of a buyout and on a lack of news from either side, but it was helped by higher oil prices and MOL’s treasury share purchases.

Late in September, OMV said it was prepared to pay HUF 32,000 per share for MOL, which pushed MOL’s share price up to 28,895. Financial market regulator PSZAF later slapped OMV with a HUF 25m fine for influencing the market with the announcement.

In the autumn, MOL gained more ammunition against OMV after Parliament passed a law giving companies that are strategically important to Hungary special powers to fend off hostile takeovers. The law was dubbed “Lex MOL”.

Though MOL’s treasury share purchases and Lex MOL posed a formidable obstacle for OMV, in the end, it was the EU’s competition authority that dealt the fatal blow to OMV’s plans to take over MOL.

Following additional share purchases, OMV is left with a 20.2pc stake in MOL. The company has no plans to sell the stake just yet, rather it wants to use them to “have a ticket to” the coming consolidation of the industry in Central and Eastern Europe”, OMV Chief Executive Wolfgang Ruttenstorfer said in a conference call with analysts.


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