Spurned buyer OMV still holds key to MOL future

OMV had hoped to create a $45 billion oil and gas giant nestled between western European giants, such as Royal Dutch Shell Plc and Russian titan Gazprom. Analysts say its options now include holding on for another chance, reducing its holding or selling the entire 20.2% stake, worth about $2.7 billion, to MOL or another oil major.

After a year of Hungarian government resistance and concerns over prices and competition raised by the European Commission, OMV walked away from the takeover on Wednesday. A lawsuit over MOL’s tactics has been filed and a separate bidding war looms as the two eye stakes in Croatian oil firm INA. “The dilemma for MOL is what OMV will do with its stake,” said analyst Tamás Pletser of ING Financial Markets. “MOL may be interested in buying it back, but it can’t afford to do that at the same time as it’s moving to raise its stake in INA.”

OMV has indicated it might take a stake in INA while MOL has said it might increase its 25% holding through a cash and shares deal which analysts say could be worth up to $2 billion. OMV CEO Wolfgang Ruttenstorfer has said he has no plans to sell out of MOL, telling Reuters last October that he expected sector consolidation to take two or three years.

But analysts say a sale is possible, potentially one which opens the door to Gazprom or Rosneft. Market watchers say collapse of the deal underscores challenges for mid-sized groups in an industry of giants, while prospects of Russian investment in the region’s refiners would likely meet with resistance.

 
MOBIUS SEES OPTIONS

Some analysts, such as well-known Franklin Resources fund manager Mark Mobius, see the collapse of the deal as a chance for MOL to spread its wings. “MOL has many options,” Mobius said. “They can combine with a Russian firm to form a major force in Eastern Europe. Also, a combination with (Poland’s) PKN would be quite good and synergetic.” Mobius was one of the biggest cheerleaders of OMV’s takeover bid for MOL. His fund holds 1.1% of OMV and 1.7% of MOL.

MOL’s rough tactics to keep away its Austrian rival have left a bad taste in the mouths of many minority shareholders. Mobius acknowledges that the year-long battle has had a negative impact. “It cannot be denied that the defense strategy of MOL was effective, but it also created serious concerns regarding corporate governance in Europe generally and also for Hungary and the region,” he said.

KBC Securities analyst Olena Kyrylenko agrees: “OMV did not win the war, but it did succeed at bringing down MOL in the eyes of investors.” MOL shares hit a life high above Ft 31,000 per share after OMV made a bid at a 43% premium at Ft 32,000 per share last September. They now languish around Ft 18,000, clouded by the uncertainty created by the takeover’s collapse.

The stock shed 6% on Wednesday after OMV threw in the towel and now faces prospects of investors and funds, who had bet on a takeover unwinding their positions further in MOL, the second largest listed company in the post-communist markets of eastern and central Europe. MOL’s enterprise value, or market capitalization plus net debt, stands at 4.5 times EBITDA, in line with its European rivals, ING’s Pletser said. (Reuters)