AUSTRIA’S OMV VERSUS HUNGARY’S MOL: THE LESS EFFICIENT TARGETING THE MORE EFFICIENT

Austria’s national energy champion, OMV, persists with attempts to take over its Hungarian counterpart, MOL, even as OMV itself seems to drift into closer association with Russia. The Austrian government, the single largest shareholder in OMV — 31.5% direct control plus some small stakes under indirect control — is involved with both facets of this process.

Russian Industry and Energy Minister Viktor Khristenko has officially invited Austria to take part in Gazprom’s South Stream pipeline project, rival to the European Union-backed Nabucco plan. According to Austrian media reports, Economics Minister Martin Bartenstein welcomed this “positive signal” in his reply to Khristenko’s letter (Austrian Press Agency Economic News Service, August 16). South Stream, a modified version of Gazprom’s Blue Stream project, could carry Russian gas via the Black Sea and the Balkans to an Austrian “hub,” for storage and transmission farther afield in Europe.

The government and OMV remain engaged in negotiations toward implementing the Nabucco project. However, lacking immediate access to Iranian and Central Asian gas, OMV and the Austrian government are apparently succumbing to Russian offers.

Russian President Vladimir Putin’s May 23-24 visit to Austria laid the ground for that country’s integration into Gazprom’s expanding network of dependencies (see EDM, May 29). Under agreements of intent signed during that visit, Gazprom and OMV are to build a Central European Gas Hub and Gas Transit Management Center — the largest in continental Europe — at Baumgarten near Vienna; as well as a gas-storage system in that area. This agreement of intent further undermines the Nabucco project, which envisaged Baumgarten as its terminus point and distribution center for non-Russian gas. Furthermore, OMV and the government of Chancellor Alfred Gusenbauer seemed to leap at Gazprom’s proposal to expand Austria’s gas transit capacity for carrying growing volumes of Russian gas into EU territory. Thus, OMV is tying its prospects in the gas business closely with Russia.

In the oil business, meanwhile, OMV aims to take over MOL’s assets, which are recognized as far superior to those of OMV or any company in Central Europe. OMV’s CEO Wolfgang Ruttenstorfer again made clear this intention in his August 8 and August 16 news conferences. Although using oblique language (“tie-up” instead of takeover; a “negotiated,” rather than a hostile one) Ruttenstorfer confirmed the intention to continue raising OMV’s stake in MOL in a piecemeal manner and deprecated MOL’s resistance to a takeover as “emotional” (Platt’s Commodity News, Austrian Press Agency, Dow Jones, August 8, 16).

OMV’s half-year corporate report, issued on August 16, clearly alludes to further acquisitions of MOL shares “to improve OMV’s position in the upcoming wave of consolidation” in Central Europe. While Ruttenstorfer speaks of acquiring MOL gradually, Bartenstein predicts that a merger could be on the agenda as soon as this coming November (Reuters, AFP, August 16). Bartenstein had also publicly supported an OMV-MOL “merger” in July, after OMV had acquired an 8.6% package of MOL shares through Russian intermediaries linked to Gazprom and without notifying MOL’s management.

With Gazprom seemingly lurking behind it, the Austrian side seeks a full merger with MOL to include the latter’s gas business. However, OMV is mainly interested in MOL’s highly efficient oil refineries and fuel marketing systems in Hungary and in several Central European countries. Should some merger occur, it is widely assumed in the business that OMV would keep its Austrian assets while swapping MOL’s assets with Gazprom or Rosneft, in return for Austrian “access” to Siberian oil fields.

The takeover move also seems to be OMV’s way to eliminate a more efficient competitor in Central Europe. There, OMV is losing ground in the market-share competition with MOL, partly because OMV’s Schwechat flagship refinery and other plants are inferior by most indexes to MOL’s refineries. In fact, MOL is driving a consolidation process in Central Europe, consistently defeating OMV in acquisition bids for refineries and distribution networks in third countries there (see EDM, July 24, 25, August 7).

Under free-market conditions, MOL would be strongly placed for a well-nigh irresistible takeover of OMV’s Schwechat plant. However, OMV assets on Austrian territory seem politically immune to a takeover from a regional competitor. Austrian state control of the company and a cozy relationship between government and labor unions in Austria ensure such immunity. Meanwhile, the Hungarian government no longer owns MOL shares after giving up its last, veto-wielding “golden share.”

In the oil sector, an OMV takeover of MOL would be a takeover of the more efficient by the less efficient. At the moment, OMV with its market value of circa $13 billion, is borrowing some $12 billion, which equals MOL’s market value and seems intended for a takeover attempt.

MOL is defending itself through a share buy-back program, which has by now brought some 39% of the shares apparently out of reach for OMV. The latter controls 19% at present.

Hungary’s Justice Ministry is currently drafting a bill on restricting foreign ownership of strategic companies, for presentation to the government by the end of August. In the short term, these measures are a defense against a hostile bid by OMV. In the medium-term, however, these are precautions against a possible takeover by Russia via OMV.