IHS Global Insight Perspective | |
Significance | OMV, which was previously rejected in its hostile takeover attempt at MOL, today said it has sold its 21.2% stake in the Hungarian firm to Surgutneftegaz for 1.4 billion euro (US$1.86 billion). |
Implications | The stake sale generates cash for OMV to help weather the financial crisis and the economic downturn while providing Surgutneftegaz with the opportunity to strengthen its vertical integration and an outlet for its crude oil in central Europe. |
Outlook | The acquisition of OMV's stake in MOL by a Russian oil firm could cause objections by the Hungarian government, particularly if Surgutneftegaz makes a move to try to increase its stake to a blocking or especially a controlling share. |
End of the Road for OMV
The final chapter in OMV's frustrating involvement as a stakeholder in Hungary's MOL has now been written, as the Austrian company said today that it has sold all of its 22,179,488 shares—equal to 21.2% of the Hungarian company's shares—to Surgutneftegaz. OMV said that it sold its stake to the Russian oil major for 1.4 million euro (US$1.86 billion), corresponding to 19,212 Hungarian forints per share, a 93% premium to MOL's closing share price on Friday (27 March) of 9,940 forints/share.
The writing had been on the wall for OMV's divestiture of its stake in MOL for some time, ever since the Austrian firm abandoned its takeover attempt of MOL last August in the face of competition concerns voiced by the European Union (EU), as well as strong opposition from the Hungarian government and the MOL board itself (see "Related Articles"). MOL's subsequent deal to take over Croatia's INA, together with a further divergence of strategies between OMV and MOL, appears to have prompted OMV to pull the trigger and divest its stake in MOL. The sale of the 21.2% stake to Surgutneftegaz will give OMV some much-needed cash to help finance other core activities and provide it with a buffer to weather the effects of the downturn in oil prices and the economic crisis.
Surprise Spend from Surgutneftegaz
The surprise in today's announcement lies not in the selling of the OMV stake in MOL, but in the buyer that OMV lined up. Surgutneftegaz, the fourth-largest Russian oil producer, has long been criticised for its stingy dividend policy and its reluctance to do anything more than sit atop a growing cash pile. Surgutneftegaz has begun to invest more in new Russian greenfields in Eastern Siberia as a way of replacing declining production from its existing fields, but still the company is seeing a stagnation in its production, with output falling each of the past two years.
Surgutneftegaz's strategy of building up a huge cash stockpile—estimated at around US$20 billion—has come under sharp criticism, but in the current credit crunch, this strategy has made the firm's financial position the envy of its peers in Russia. The irony of Surgutneftegaz finally spending some of its cash to expand its portfolio while others scramble to raise loans to finance existing operations will not be lost on the other Russian oil majors. Nor, for that matter, will the fact that it is a Russian company that has acquired the OMV stake in MOL be lost on the Hungarian government.
One of the long-held (and mainly irrational) fears of an OMV takeover of MOL was that OMV itself could then be acquired by a Russian oil company, leaving Hungary's energy security at the mercy of a Russian firm taking its orders from the Kremlin (Russia's presidential administration). OMV officials may not take any extra satisfaction in having sold the company's MOL stake to a Russian firm, but given the Austrian company's frustrations in being rejected in trying to take over MOL, it would not be surprising to see OMV executives smirking today.
Outlook and Implications
OMV's divestiture of the MOL stake makes perfect sense, as the Austrian company had seemingly little reason to hold the stake after its takeover attempt was rejected, and—judging by the premium offered by Surgutneftegaz on MOL's Friday closing share price—it appears OMV received an offer that it could not refuse. Why Surgutneftegaz chose to buy the stake is a bit more perplexing, however. Part of the allure may be in actually having the opportunity to buy, given the typical xenophobic reaction in Europe towards Russian energy companies looking to make downstream investments; by acquiring the MOL stake from a third party, Surgutneftegaz effectively avoided this problem.
For the Russian oil major, acquisition of the minority stake in MOL has important potential benefits, mainly in strengthening Surgutneftegaz's vertical integration by providing access to MOL's Hungarian and Slovak refineries and end-users in central Europe. Surgutneftegaz refined only around 447,000 b/d of its 1.2 million b/d of crude oil production in February, and all of that refining was in Russia. Securing access to MOL's 336,000-b/d refining capacity and its retail fuel network offers good opportunities for Surgutneftegaz to "achieve maximum proximity" to customers, as the company put it.
Nevertheless, the MOL stake acquisition may yet face hurdles, as the fact that a Russian firm has bought OMV's stake in the Hungarian firm will no doubt raise red flags in government circles. The belief that Surgutneftegaz, already seen as close to the Kremlin, could be acquired itself by state-run Rosneft could aggravate some of the worst-case scenario fears in the Hungarian government, although Russian officials have downplayed the persistent rumours of a Rosneft-Surgutneftegaz tie-up. While the simple acquisition of a minority stake in MOL by Surgutneftegaz does not in itself jeopardise Hungary's energy security, it is likely nevertheless to be interpreted as such. Moreover, the Russian firm runs the risk of experiencing the same frustration as OMV if Surgutneftegaz attempts to increase its share in MOL to a blocking or controlling stake.
Related Articles
Hungary: 15 October 2008: Hungarian Government Ready to Modify "Lex MOL" Legislation
Hungary: 26 September 2008: OMV Sells Half of Shares in MOL but Denies Exit from the Company
Croatia: 16 September 2008: INA Board Accepts MOL Offer
Croatia: 2 September 2008: MOL Launches Official Bid for INA
Hungary: 6 August 2008: OMV Abandons Bid to Take Over MOL
Hungary: 4 July 2008: OMV Launches Court Action Against MOL over Shareholder Meeting
Hungary: 19 May 2008: OMV Seeks Legal Ruling over MOL Shareholder Votes
Hungary: 24 April 2008: MOL Wins Shareholder Backing at Tense AGM, But Stand-Off with OMV Set to Escalate
Hungary: 25 September 2007: OMV Presents Offer for MOL But Significant Hurdles Remain
Hungary: 3 September 2007:OMV Maintains Interest in MOL Following CEZ Alliance; Hungary Publishes Foreign Ownership Bill