Surgut Misfires Once More Against Hungarian MOL

For the second consecutive year, Russia’s Surgutneftegaz has failed to crash the door of the Hungarian MOL’s annual general meeting of its shareholders and the board of directors. The April 29 event seems set to consolidate MOL’s defenses against such predatory takeover tactics. MOL’s oil-refining business, recognized as the most efficient in Central Europe, is a coveted target in EU territory for the cash-rich Surgut.

Surgut’s top management is closely linked with the Kremlin, while the company’s shareholders and ultimate beneficiaries remain undisclosed. Thus, the company looks unusually murky even by Russian standards.

Surgut had initiated a hostile takeover attempt against MOL in March 2009, surreptitiously buying a 21 percent stake in MOL from Austria’s OMV for 1.4 billion Euros, which was almost double the market price of those shares at that time. The seller, OMV (a defeated competitor to MOL in Central Europe), along with the deal’s broker J.P. Morgan, helped Surgut’s move. That transaction turned Surgut into MOL’s single largest shareholder overnight, with the avowed intent to increase that stake further and dominate the Hungarian company. Surgut had made its move in the immediate run-up to MOL’s annual general meeting, so as to obtain voting rights and representation on MOL’s board of directors.

Thwarted in 2009, Surgut seems certain to fail again this year, thanks to Hungary’s transparency requirements. The regulatory agencies, Hungarian Energy Office (MEH) and Financial Supervisory Authority (PSZAF) cannot approve Surgut’s registration and its listing in MOL’s registry of shareholders, as long as Surgut fails to disclose its own shareholder structure and ultimate beneficiaries. The regulators also have questions about Surgut’s 2009 purchase of the MOL shares (why did it pay double the market price?). Surgut fails to disclose that type of information even in Russia, let alone to Hungarian regulators. Consequently, it does not qualify to attend MOL’s shareholders’ meeting, vote, or receive dividends on its stake (Figyelo, April 15).

The Russian business press is paying considerable attention to this case in the run-up to MOL’s annual general meeting (Kommersant, April 6, 15; Vedomosti, April 14; RosBusinessConsulting, April 14, 16). Some interested parties suggest that Moscow might cut oil supplies to MOL’s refineries from the Druzhba pipeline, as it has done since 2007 against the Lithuanian Mazeikiai refinery, to force a transfer of ownership to Russian interests (Kommersant, April 7). However, this warning sounds unconvincing with regard to Hungary. Unlike Lithuania, Hungary is not located at the terminus of a Druzhba spur, and it does have a back-up supply option for Middle Eastern oil via Croatia’s Adriatic coast.

Politically, Hungarian parliamentary parties have reached a consensus on defending MOL from any foreign takeover. This view will become even stronger with the landslide victory of Fidesz, a right-conservative party, in Hungary’s two-round parliamentary elections on April 11 and April 25. Fidesz regards MOL (along with the leading companies in several other sectors) as national champions to be immunized against hostile takeovers. According to Janos Martonyi, the Fidesz-designated foreign minister, the incoming government wants an early resolution by agreement between Surgut and MOL. Without discriminating against the Russian company, the government will oppose any takeover moves by Surgut or other foreign entities (MTI, April 16).

MOL had paid out 40 percent of the net profits as dividends to shareholders until 2008. In 2009, however, it did not pay dividends on the profits from 2008; and is set again to forgo the 2009 dividend (on net profits estimated at more than $500 million) at the 2010 annual general meeting. As was the case last year, the total net income is again being booked as retained earnings, mostly for reinvestment to support organic growth. In 2009, MOL spent 873 million Euros to acquire an additional 22 percent –for a total of 47percent, along with managerial authority– in Croatia’s oil and gas company INA. In 2010, and next year, MOL plans upgrades in five oil processing and petrochemical plants. These include plants in Croatia, where MOL’s investment and modernization program is moving ahead despite the recession (Vilaggazdasag, April 14).

To continue the growth program, MOL signed on April 14 agreements on a Eurobond issue for 750 million Euros, with a seven-year maturity and due to pay an annual coupon of 5.9 percent (Dow Jones, April 15). The bond issue is being oversubscribed, apparently reflecting investor confidence not only in the company’s strategy, but also in its position in Croatia and its immunity to attacks from Surgut.