Surgut Neftegaz is Thwarted in Hungary, While Austria Examines OMV-Surgut Deal

Vienna’s Prosecutor Office announced on November 17 that it has brought charges against OMV’s oil and gas company CEO, Wolfgang Ruttenstorfer, following the Austrian financial regulators’ investigation into OMV’s sale of a large stake in Hungarian MOL to Russian Surgut Neftegaz (Austria Presseagentur, November 17, 18).

On November 18 in Budapest, the High Court of Appeals upheld the City Court’s earlier ruling against Surgut, which had sought legal registration as a stakeholder in MOL, the national oil and gas company. Technically, Surgut was asking the courts to invalidate MOL’s April 2010 refusal to enter the Russian company’s shares in the Hungarian company’s shareholder register. The High Court of Appeals’ ruling means that Surgut’s acquisition of a 21 percent stake in MOL (the single largest stake by far) continues to lack legal status (MTI, November 19).

Surgut had acquired that MOL stake surreptitiously from Austrian OMV in March 2009, in a hostile takeover move against the Hungarian company. Surgut instantly sought voting power in MOL shareholders’ meetings and representation on MOL’s board. MOL responded with legal and corporate defenses to forestall a possible takeover. Irrespective of this, however, neither MOL nor the courts could have accepted Surgut’s demands and claims, in the absence of Hungarian regulatory clearance of Surgut’s acquisition of that stake.

Hungarian and Austrian regulatory agencies have separately considered the dubious circumstances of Surgut’s purchase into MOL. In Hungary, the Financial Markets Supervisory Agency has withheld its judgment, while the Energy Office is waiting for Surgut to meet basic legal prerequisites to operating in Hungary. The first requirement is disclosure of the ownership structure and of the ultimate beneficiary owners. In this as in other respects, Surgut is non-transparent even by Russian standards.

Surgut had paid $1.9 billion (1.4 billion Euros) for that stake in March 2009, almost double the share price on the market at that time, for purchasing 21 percent of MOL’s shares from OMV. It never explained that overpayment; and in Russia, Surgut’s undisclosed shareholders never held the management accountable for this. It was the first “investment” in European Union territory by this Kremlin-connected company. On November 2, 2010 in Moscow, Russian Deputy Prime Minister, Igor Sechin, boldly asked the European Energy Commissioner, Guenther Oettinger, to intercede for the legalization of Surgut’s purchase in Hungary (Interfax, November 2). Sechin, a close ally of Prime Minister, Vladimir Putin, is concurrently the chairman of Rosneft, which has been considering a merger with Surgut.

In Austria, the Financial Markets Supervisory Agency (FMA) launched an investigation in April 2009, and its conclusions were released with the November 17, 2010 announcement of the Prosecutor’s Office. The FMA’s investigation has established the following chronology:

On March 18, 2009, OMV’s CEO Ruttenstorfer granted an interview to Profil, an influential Vienna weekly, firmly ruling out a sale of OMV’s MOL shares during 2009 at least. On March 23, that statement was published in Profil. On the same day, Ruttenstorfer purchased 620,000 Euros (almost $ 900,000) worth of OMV shares (duly notified, and as part of the company’s executive compensation program). On March 30, OMV stunned the market by selling its stake in MOL to Surgut Neftegaz. The sale, at almost twice the market price (see above), also meant the welcome end of OMV’s losing takeover battle against MOL. The market reacted by lifting OMV’s share price, thus boosting the value of shares that Ruttenstorfer had acquired a few days earlier. Based on FMA’s investigation, the Prosecutor’s Office has now filed insider-trading charges (Wirtschaftsblatt, Der Boersianer, Die Presse, November 17, 18).

Ruttenstorfer’s comments shed a brighter light on that transaction from the standpoint of Russian energy companies’ manipulative tactics in Europe’s open markets. According to the OMV chief, Surgut unexpectedly jump-started the negotiations about the MOL stake, holding a first round of talks with OMV in Moscow on March 26, 2009, and upping the ante on March 28, which led to the deal’s signing during the night of March 29-30. OMV instantly approved the deal as a straight business matter, apparently without regard to the multiple adverse ramifications (for fellow-EU member Hungary, the Nabucco project, and the integrity of the legal and regulatory environment in EU territory). OMV’s board has expressed its full confidence in the CEO in response to the Prosecutor Office’s announcement, without however mentioning those ramifications, or questioning Surgut’s motivations in grossly overpaying for those shares. For his part, Ruttenstorfer explains that he has acted legally throughout (Financial Times, March 18; Wirtschaftsblatt, Der Boersianer, Die Presse, November 17, 18).

Commentators in the Austrian media and the business press tend to regard the charges skeptically (“thin soup”). Indeed, the issue far transcends the realm of individual conduct. Russian state-controlled energy companies have recently started acquiring major oil-industry assets in EU countries, and bidding for more (Netherlands, Germany, Poland), on top of Gazprom’s efforts. Hungary is defending itself successfully from Surgut thus far. The EU overall, needs better defense mechanisms from such predatory takeovers.