AUSTRIA’S OMV GIVES UP HOSTILE TAKEOVER BATTLE AGAINST HUNGARY’S MOL

On August 6 the board of directors of Austria’s OMV energy conglomerate decided to abandon its hostile takeover attempt against the Hungarian counterpart MOL (OMV press release, August 6; Der Standard, August 7). The European Commission’s negative assessment of a possible takeover, as well as MOL’s successful corporate defense, has finally forced OMV to give up its year-old takeover effort.

OMV mainly coveted MOL’s oil-refining business, which is ranked among Europe’s most efficient, superior to OMV’s own, and consistently winning against OMV in the competition in Central European markets. Each company is the single largest business entity in its respective country.

The battle attracted Europe-wide attention for four reasons. First, because it tested the application of European laws on competition and free movement of capital by the European Commission. Second, because the less efficient, state-dominated OMV (one-third Austrian government-owned, 17 percent Abu Dhabi-owned) tried to take over the more efficient, privately-owned MOL, even if it had to borrow heavily for this bid. Third, because OMV’s tactics against MOL, a Nabucco partner, disrupted the Nabucco consortium, which OMV undermined at the same time through separate deals with Gazprom (as did other parties, though not MOL). And fourth and potentially of decisive significance, a takeover of MOL’s refining assets by OMV was likely to become a transitional stage toward a Russian takeover from OMV, irrespective of what the Austrian company may or may not have anticipated in this regard.

OMV had owned 8 percent of MOL in early 2007 and increased its stake to 20 percent during that year through share acquisitions. It then made a seemingly attractive offer to buy the remaining 80 percent from the other shareholders, on the condition that shareholders changed MOL’s articles of incorporation to allow an easy takeover. Outlined in mid-2007 and announced publicly in September, the offer sought practically to trigger a shareholder revolt and unseat the management, although the financial and legal basis for OMV’s proposal looked uncertain throughout. The Austrian company offered some €11.5 billion, which came fairly close to OMV’s aggregate market value, estimated at some €14 billion as of late 2007.

In accordance with EU procedures, the Austrian company filed a merger notification with the European Commission (EC) in January 2008. On June 16 the EC issued a Statement of Objections and asked for OMV’s comments as the next procedural step. The EC’s concerns and OMV’s response in July focused on the proposed takeover’s impact on the oil-refining industry and fuel market in Central Europe. Ultimately the EC found OMV’s arguments “not acceptable,” according to Austrian company’s final account of the debate (OMV press release, August 6).

The EC’s still-confidential report has found its way to the trade press. The EC found that MOL’s acquisition of OMV would limit competition in the gasoline, diesel fuel, heating oil, kerosene, and other oil derivatives in Austria, Hungary, Slovakia, and potentially other Central European countries, resulting in major price increases. Following a takeover, OMV would end up owning MOL’s Szazhalombatta and Slovnaft refineries (in Hungary and Slovakia, respectively) in addition to OMV’s Schwechat refinery near Vienna, thus creating a monopoly situation.

Thus, the EC concluded that OMV would have to sell a refinery and some fuel distribution networks in order to comply with European competition law. The EC rejected OMV’s argument that compliance with the competition law was possible merely by selling some gasoline stations and sharing its refining capacities with some other party. The EC asked OMV to be prepared to sell major refining capacities in the event of a takeover (Origo, August 6).

MOL had anticipated such conclusions all along. They seemed as self-evident as the fact that Russian oil giants were the only buyers in sight. A takeover from MOL by OMV would probably have been followed by divestiture from OMV to LUKoil, Rosneft, or Gazprom Neft, all three of which are actively seeking to buy refineries in Europe and have recently budgeted special funds for such purchases.

The Hungarian company defended itself against a hostile takeover by launching a share repurchasing program, ultimately amassing more than 40 percent of the total shares and parking them with friendly investment banks. Last September the Hungarian parliament introduced legal obstacles to foreign state-controlled companies’ takeovers of Hungarian-owned companies that are critical to the security of energy and water supply to the public. Although the law never mentions MOL, it was mainly triggered by OMV’s hostile takeover attempt (Vilaggazdasag, August 7).

The share repurchase inevitably limited MOL’s own potential for organic growth and expansion. This may all along have been OMV’s goal, short of a takeover or preliminary to one. Nevertheless, and despite the takeover battle, MOL won against OMV the contests for buying the Mantova refinery in northern Italy and a majority stake in Croatia’s INA oil refining and fuel distribution company.

According to OMV’s announcement, the company management intends to continue the lawsuits it has already initiated against MOL, hoping to force changes in MOL’s corporate structure. It looks like a rearguard action and face-saving move at this stage.