OMV VERSUS MOL: A TEST CASE FOR THE EU AND ITS ENERGY POLICY

The Austrian government and the state-controlled OMV energy champion have launched a campaign in European media and with EU authorities in Brussels for a hostile takeover of Hungary’s fully private-owned MOL energy champion. Members of the Austrian government, such as Economics Minister Martin Bartenstein and Finance Minister Wilhelm Molterer, are publicly backing OMV’s campaign. The government controls officially 31.5% of OMV’s shares (informally somewhat more) and Abu Dhabi’s state-controlled investment fund holds another 17.5%.

Despite these facts, certain EU spokesmen and editorialists seem to accept uncritically OMV’s argument that Hungarian resistance constitutes an offense against the free market generally and against EU regulations in particular, for example regarding the free movement of capital. Meanwhile, no EU authority was heard objecting to OMV’s agreement of intent (signed in May 2007 in Russian President Vladimir Putin’s presence) to turn Austria’s gas distribution center Baumgarten into a joint venture with Gazprom — an anti-market move that could moreover have aborted the EU’s Nabucco project. Such confused circumstances — and, now, the high publicity surrounding OMV’s move against MOL — reflect existing loopholes and misconceptions in EU energy policies and are turning the OMV-MOL controversy into a test case for the EU.

On September 25, OMV’s CEO Wolfgang Ruttenstorfer announced through the media an offer valued at $20 billion to MOL shareholders, for 80% of MOL’s shares (OMV now owns 20%). The offer, which remains standing, was 19% higher than the MOL share quotations of the previous day; and 44% higher than MOL’s quotations just prior to OMV’s first takeover bid in June. OMV’s current offer also exceeds OMV’s own market value, estimated at some $14 billion. To finance such a bid, OMV had launched negotiations in July on an $11 billion syndicated loan, potentially mortgaging the farm. Apparently, the company counts on an Austrian state bailout, if this high-risk strategy backfires.

The Austrian government seems to suggest introducing a similar model in Hungary also. Attempting to reassure the Hungarians that they could retain a blocking minority after a takeover, Minister Bartenstein proposes that the Hungarian side retain 25% plus one share, for “the Hungarian government to ensure politically that it does not come to a takeover of MOL by OMV” (Financial Times Deutschland, October 1). Meanwhile, MOL as well as Hungary’s government and parliament are concerned that an OMV takeover would usher in a Russian takeover not long thereafter, irrespective of OMV’s current intentions, which look uncertain in any case since Putin’s visit.

Apparently underestimating these ramifications, a spokesman for the EU’s Internal Market Commissioner warned Hungary of “potential conflicts with European treaty rules guaranteeing the free movement of capital” (Financial Times, September 26). Based on such warnings, editorialists in London and Moscow wrote that Hungary had embarked on a “collision course with the EU.” This perception seems behind the curve, however. The EU on September 20 released legislative proposals that would restrict opportunities for state-controlled firms and state investment funds to acquire certain types of energy assets on EU territory. Admittedly, those legislative proposals pertain to gas and electricity, whereas MOL’s most coveted assets are its oil refineries, with their margins twice as high as OMV’s. However, parts of those EU proposals reflect a clearer understanding that legal defenses are necessary to defend market structures against raiding by non-market actors. In the oil sector, for example, Shell’s offer to transfer its major stake in Germany’s largest refining complex, MIRO, to the Kremlin-controlled Rosneft is the type of scenario that Hungary foresees in the event of an OMV takeover of MOL.

Thus, if European treaty rules guaranteeing the free movement of capital are misused for pursuing de-privatization and re-etatization, or takeovers of the more efficient by the less efficient, then some European states will enact legislation to forestall such consequences, unless the EU adjusts the treaty rules to face this relatively recent challenge. The Hungarian parliament is drafting just such legislation at the moment and more countries may follow suit if Brussels does not move soon.

To construe this situation as “depressingly familiar … a foreign bidder is being blocked by a defensive government,” and to lump Hungary’s government with those “dropping their free market allegiances” (Financial Times, September 26) is to reverse the actual terms of the problem. It is in fact the government-controlled OMV, with Abu Dhabi in tow, that seeks to take over the privately owned MOL.

In recent days, OMV launched a road show with investors in London and elsewhere who own minority stakes in MOL. Well advertised through media interviews and news conferences, it takes the oft-used approach of instigating a rebellion against MOL management through high premium offers to shareholders (Wall Street Journal Europe, Financial Times, Der Standard, Reuters, AFP, September 27-October 1). However, the premium lure does not seem credible to stock markets because it is contingent on unlikely steps by MOL, such as lifting the 10% cap on voting rights by any one shareholder (individual or organization) or relinquishing control over 40% of the shares now in management-friendly hands.

Meanwhile, OMV also risks putting the Nabucco project at risk through its battle against MOL, both companies being members of the consortium for this top-priority EU project.