LEX MOL AND THE VOLKSWAGEN RULING: COMPARING APPLES AND ORANGES

On October 23 the European Court of Justice (ECJ), the European Union’s highest court, overturned Germany’s Volkswagen law, which restricts the voting rights of that company’s shareholders to 20%, regardless of the size of the stake owned. The European Commission had initiated the case three years ago by arguing that the Volkswagen law was a barrier to cross-border investment and blocked takeovers. In practice, however, no foreign takeover is in sight for Volkswagen. The 20% voting cap’s removal paves the way for Volkswagen’s ongoing, gradual, and transparent takeover by another German company, Porsche.

Austria’s state-controlled OMV energy champion construes this ECJ ruling as a European precedent applicable to Hungary’s MOL, the target of OMV’s hostile takeover attempt. In OMV’s interpretation, the ECJ has ruled that any restriction on shareholder rights, such as a voting cap, is illegal under the European treaty. OMV now hopes to see the ECJ’s Volkswagen ruling applied to MOL, where a 10% voting cap is in effect for shareholders, regardless of the stakes they hold. OMV, which owns 20.2% of MOL shares and seeks more in order to take over, claims that the voting cap hinders the free movement of capital and contravenes EU law. On such grounds, OMV wants European Union authorities to challenge and possibly overturn Hungary’s just-adopted “Lex Mol” (MOL law, an informal and inaccurate label, as the law never mentions MOL). This law shields Hungarian energy- and water-supply companies from hostile takeovers by foreign state-controlled entities.

However, the Volkswagen and MOL situations differ starkly from one another. While Volkswagen’s voting cap was introduced by state intervention and enshrined in German law, MOL is fully private-owned and its decisions are taken by shareholders, not the state. The voting cap and related decision-making procedures are stipulated in the shareholders’ articles of association, a private issue beyond state intervention. Although the voting cap originated in 1995 when MOL was still state-owned, the cap was maintained after privatization by decisions of shareholders over the years. The just-adopted “MOL law” actually increases shareholder rights by delegating the most important decisions to general meetings of shareholders in those Hungarian companies.

The ECJ also ruled that the presence of two state delegates on Volkswagen’s board contravened EU law. Meanwhile, the federal state of Lower Saxony holds a 20% stake in Volkswagen and has promptly announced its intention to retain that stake. There is no such situation at MOL. While the German law was specifically tailored to protect Volkswagen and gave it a unique status in this regard, the so-called Lex MOL applies to a sector, never mentioning MOL and not privileging any particular company.

While Volkswagen is in no sense a “strategic” company (notwithstanding its somewhat iconic status), Hungary’s energy companies are now deemed to be of “strategic national concern” by wide consensus among political forces, as evidenced in the parliamentary debates on the “MOL law.” Hungary now defines strategic enterprises as those on which the population’s energy supply depends. While Volkswagen’s prospective takeover by Porsche carries no national security or energy security implications at all, a hypothetical OMV-MOL takeover or merger would carry serious implications of that kind for Hungary. It would force a sale of MOL’s showcase oil-refining assets to a third party that could only be Russian, and this would have to be done ironically under the compulsion of EU competition law.

Meanwhile, the Austrian government continues to push OMV’s takeover bid on MOL. Apparently emboldened by the ECJ’s Volkswagen ruling, Austrian Economics Minister Martin Bartenstein is publicly asking the European Commission to “not allow Hungary to play for time” (Die Presse, October 25). Bartenstein and other Austrian government officials have openly supported OMV’s bid against MOL, even as OMV uses free-market rhetoric to justify this state-interventionist move. In early October just prior to Hungary’s adoption of the “MOL law,” Bartenstein publicly urged the Hungarian government to re-nationalize a 25% stake plus one share in MOL as a blocking stake and, on that basis, agree to a “merger” of MOL with OMV. By Hungarian market reckoning, such a stake would cost the Hungarian government some $4 billion. It could only come at the expense of infrastructure development, also jeopardizing EU-agreed programs.

The Hungarian government — as well as the opposition in a rare case of consensus — takes the position that Hungary did not privatize MOL only to have it re-nationalized, let alone re-nationalized by another state. Hungary’s economy is one of the most open in the EU; occasionally perhaps indiscriminately open, as in the recent sale of the national air carrier Malev to a Russian group in preference to Western bidders.

OMV chief executive Wolfgang Ruttenstorfer’s complaints about MOL’s voting cap seem to ignore the existence of such voting caps in many European companies, including Austrian ones. Austria’s big electricity utility Verbund, for example, used that voting cap to stop Ruttenstorfer’s recent takeover bid against that company.

(Financial Times Deutschland, October 24; Dow Jones, MTI [Budapest], Die Presse, October 25-29; Platts Commodity News, October 29)