OMV UPS ANTE IN HOSTILE BID FOR MOL

UNCLAS SECTION 01 OF 02 VIENNA 002493 SIPDIS SIPDIS, SENSITIVE E.O. 12958: N/A TAGS: ENRG ECON PGOV EPET AU SUBJECT: OMV UPS ANTE IN HOSTILE BID FOR MOL REF: VIENNA 2111 Summary -------------- ¶1. (U) Austria's leading energy company, OMV, has made public an offer to buy at least 50% of the voting shares of Hungary's MOL at a price 18.7% above MOL's current market price. OMV has conditioned its offer on MOL removing limitations on minority shareholders voting rights and canceling MOL's control over approximately 40% of the company's shares, acquired in a defensive maneuver following OMV's initial offer in June. OMV has undertaken an anti-trust pre-notification process with the European Commission. OMV CEO Wolfgang Ruttenstorfer acknowledged that the acquisition timeline might be "two to three years." OMV has offered equal Hungarian representation on the board of directors of a merged entity, as well as Budapest as the location for the largest business division (refineries). OMV claims to have lined up Euro 9 billion from a syndicate of banks to finance the takeover. The GoA political class has reiterated its support for the OMV-MOL merger, characterizing the new entity as a champion in the Central European energy market. End summary. OMV Sweetens Its Offer -------------- ¶2. (U) On September 25, Austria's leading oil and gas company, OMV, sent a Declaration of Intent to the management of Hungary's MOL, informing the Hungarian energy firm of its plan to offer MOL shareholders Euro 128 per share to obtain a majority stake in MOL. The offer is 18.7% above MOL's closing price on September 24. The offer is 43% above the share price on May 21 when MOL management began to buy back shares in a defensive maneuver to gird itself against an expected hostile takeover from OMV. OMV had indeed quietly increased its share in MOL from 10% to 18.6% by June 25 when it announced its interest in acquiring the Hungarian company. OMV now claims to hold 20.2% of MOL shares. OMV's Conditions -------------- ¶3. (U) OMV stipulated that the offer is conditional on OMV securing at least 50% voting control of MOL, as well as obtaining EC antitrust approval. OMV confirmed that it has already undertaken an antitrust pre-notification process with the European Commission. OMV also acknowledged that analysis and discussion indicated that "some disposals would be required from the combined entity." According to the letter, there are two impediments that presently hinder OMV's acquisition of MOL: a 10% voting limitation for minority shareholders and MOL's "effective control of around 40% of the shares." OMV appealed directly to MOL's "independent shareholders" to consider its offer. Wooing the Hungarians -------------- ¶4. (U) OMV believes an OMV-MOL merger would be an important step to create a Central European energy champion. Following fierce opposition from MOL management in June, OMV has targeted MOL shareholders to persuade them of the benefits of a merger: new growth opportunities; asset base optimization; synergy effects of approximately Euro 400 million per year; and enhanced energy security. ¶5. (SBU) An OMV press release maintained that a merged OMV-MOL entity would become the fourth biggest European refiner (877,000 barrels per day) and the seventh largest retailer, as measured by number of gas stations (3,513). (Comment: OMV arrived at these numbers by simply totaling the two companies' figures. A merged entity would undoubtedly shed some of its assets in these areas, especially in areas where OMV and MOL are in direct competition. End Comment.) Ruttenstorfer pointed out that an OMV-MOL linkup would place both companies in a better position vis-`-vis the growing strength of Lukoil, Rosneft, and Gazprom in the region. Regarding Nabucco, Ruttenstorfer stated that he did not foresee any linkage with the pipeline project, "to which Hungary remains fully committed." A merged entity would be a 40% shareholder in Nabucco Gas Pipeline International GmbH. ¶6. (U) OMV's letter offered two measures that it claimed should prove OMV's "commitment to Hungary" in a merged entity. First, Hungarian representation on a newly combined board of directors would equal Austria's two representatives. Second, OMV would agree to locate the headquarters of the company's largest business division (refineries) in Budapest. OMV to MOL: Time Is On Our Side VIENNA 00002493 002 OF 002 -------------- ¶7. (U) During a September 25 press conference, OMV CEO Wolfgang Ruttenstorfer said he expected most of the 40% of the shareholders "that are not under control of the MOL management" would ultimately accept OMV's offer. However, Ruttenstorfer acknowledged OMV had a timeline of "two to three years" in which it hoped to realize the takeover. Ruttenstorfer emphasized that, during recent presentations in New York, London and other European capitals, international funds had welcomed an OMV-MOL merger, but had urged the company "to put its cards on the table." OMV CFO David Davies estimated the costs of the takeover at more than Euro 10 billion, including MOL's debts. Davies added that a syndicate of banks has already guaranteed Euro 9 billion Euro for the acquisition. Austrian Government Supports OMV Bid -------------- ¶8. (U) The GoA has rallied behind OMV's takeover efforts. Vice-Chancellor and Finance Minister Wilhelm Molterer praised OMV's clear vision to create a Central European energy champion. Minister of Economics Martin Bartenstein rejected criticism that the GoA, which controls 31.5% of OMV, was orchestrating an unfriendly takeover of a neighboring EU country's strategic industry. What the Financial Sector Thinks -------------- ¶9. (U) Austrian financial commentators anticipated the latest move by OMV. Many analysts noted that both OMV and MOL would now have to clearly lay out a strategy to their respective shareholders. Commentators also pointed out that the EC might play a crucial role in the merger tussle, if Hungary passes legislation restricting foreign ownership of its strategic industries, and the Commission is obligated to review the legislation. OMV shares closed down 5.46% on September 25, the biggest loser in the DJ European Oil & Gas Index. MOL shares closed up 3.56%. Comment -------------- ¶10. (SBU) Over the last decade, OMV has pursued an aggressive strategy in Central and Eastern Europe (CEE) and beyond, including significant acquisitions in Romania, Turkey, and, through its takeover of Rompetrol, in Kazakhstan. On the surface, it appears OMV's bid for MOL fits well into the strategy of expanding its presence in CEE. Moreover, bringing MOL under its wings would strengthen OMV's control of the Nabucco project and prevent any wavering by MOL and the Hungarian Government on Nabucco, as occurred in summer 2006. ¶11. (SBU) Although CEO Ruttenstorfer claimed that OMV's takeover timeline was "two to three years," financial markets will pressure for a more expedient outcome to the takeover bid. OMV has told the embassy (reftel) that increasing Russian presence in CEE is a near-term challenge, which was a motivating factor behind OMV's overtures to MOL. OMV's Achilles Heel in the MOL takeover bid remains the argument that the GoA, through its nominal control of OMV, is launching a hostile takeover of a privatized energy firm in a neighboring EU Member State. However, OMV has pointed out (reftel) that a strong government component in OMV will prevent any unfriendly takeovers from beyond the EU's borders. MCCAW#