In Hungary, an energy battle with Russian overtones
Two Central European energy companies are locked in a bitter battle for dominance in the region after OMV of Austria made a hostile takeover bid for MOL of Hungary, with Russian interests playing a major role behind the scenes.
The takeover attempt, which started nearly two months ago after OMV more than doubled its stake in MOL to 18.6%, has been rebuffed by MOL and by the Hungarian government. But the significant regional result of any deal could be that Gazprom, the Russian state’s giant energy monopoly, could well extend its already large influence on energy supplies in Central Europe. A takeover could allow Gazprom, given its close ties to OMV and the Austrian government, to acquire substantial assets now owned by MOL which it has long coveted, according to analysts and company executives.
MOL opposes any deal, arguing that the approach is hostile, that the combined company would not be a stronger one and that antitrust regulators would force it to divest assets. “If there was a joint venture between OMV and MOL, this would effectively mean a monopoly which the European Union might oppose,” Zoltán Áldott, the MOL executive vice president for exploration and production, said Thursday during an interview. If OMV seized control of MOL, he added, “it would mean selling off large scale efficient companies belonging to MOL. That would be very destructive especially since we have established synergy with companies acquired over the past few years.” Some analysts agreed that a combination of the two companies would not make strong economic sense. “There is really not a lot of synergy in the oil business,” said Bram Buring, Central European energy analyst at Wood Financial Services, an independent consultancy firm in Prague. “OMV is more interested in scale.”
Hungary is dependent on Russia for more than 85% of its gas supplies. But so far, Gazprom has been unable to buy a stake in MOL or get access to Hungary’s transit pipelines. MOL has carved out a strong position in Central Europe, acquiring refineries in Croatia, Slovakia and Bosnia and Herzegovina and last month a refinery in Italy, often beating OMV to the punch. Hungarian officials, speaking on condition of anonymity because they are unauthorized to speak, said that Gazprom, seeking an ever stronger presence in Central Europe, would be in a strong position to buy any assets that OMV might be forced to sell under European Union competition rules.
OMV’s relationship with Russia goes back more than 30 years, when Austria became the first West European country to buy gas from the Soviet Union. And unlike MOL, which has been privatized, OMV is part government owned, with Vienna holding a 31% stake in it, giving the government a strong influence over OMV’s affairs. After a visit by President Vladimir Putin of Russia to Vienna in May, the Austrian government agreed to a major deal with Gazprom: OMV signed a long-term gas import deal with Gazprom in return for both companies developing a Central European Gas Hub at Baumgarten, near Vienna.
That deal surprised MOL. Just a few months earlier, Putin and Gazprom had agreed in principle to use MOL as a hub for the transmission and storage of Russian gas in Central Europe. The future of that deal is unclear.
There is also the role that Russian investors have played in OMV’s takeover bid. Last May, Megdet Rakimkulov, a Russian business tycoon living in Hungary and who was an executive of Gazprom during the 1990s, bought 11% of MOL’s shares. He later sold more than 6% of those shares to Vienna Capital Markets, an Austrian consultancy with close ties to Russian, Ukrainian and Polish businesses. The shares were then sold to OMV which paid more than €1 billion, ($1.36 billion), for them, according to OMV.
MOL was taken aback by OMV’s increased stake particularly because it had not been officially notified. Hungarian company law requires any investors seeking to increase its stock above 5% to inform the company beforehand. “We were never officially notified,” Áldott said. Wolfgang Ruttenstorfer, the OMV CEO, denied this week that the company was involved in a hostile takeover. MOL had been kept informed at all times, he said. “We have very clearly stated that any move towards such a tie-up is subject to acceptance from MOL's management,” Ruttenstorfer said. “That is still the case and will continue to be so.” He added, however, that an alliance between the two companies “would have the scale and scope to compete effectively with the larger oil and gas companies in the world.”
In a statement Wednesday, MOL dismissed Ruttenstorfer’s comments, saying that they misrepresented “their true intent to acquire MOL. OMV’s continued statements of “friendly discussions” amount to double-talk.” OMV’s hostile bid has sparked a big debate inside Hungary about the role of foreign investors in a country traditionally open to foreign investment. In the 1990s, outside interests acquired most of the banking sector besides and much of the industrial and service sectors.
The OMV bid, however, could lead to some protectionist measures, according to Vasily Astrov, an economist at the Vienna Institute for International Economic Studies. “The Hungarian economy has been driven by foreign investors,” Astrov said. “They have been critical for modernizing the industry and making more efficient use of energy. But the OMV deal could force the government to protect MOL.” (iht.com)
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