Now what becomes of the open market?
An Austro-Hungarian takeover battle is testing the EU’s policies on competition and protectionism. Mark Leftly reports from Brussels
Sunday, 1 June 2008
A $20bn hostile take-over involving oil and gas majors from Austria and Hungary is threatening to wreck the European Union’s open-market ideal. This is a bitterly contested plan that has angered leading figures in the European Parliament and European Commission, and divided senior energy bankers in the City of London. And from this month, EU officials will begin a dispute-resolution process that will take at least two years.
OMV of Austria has been chasing Hungarian peer Mol since September last year. The Austrians, advised by JPMorgan and Deutsche, told Mol they might be willing to splash out 32,000 huf (the Hungarian currency) a share. That is a 50 per cent premium and values a takeover around the $20bn (£10bn) mark. Mol has fiercely contested the proposal on the basis that it would create a monopoly in central Europe. The Hungarians’ defence team comprises UBS, Goldman Sachs and Morgan Stanley.
What has most angered the European Parliament and Commission is the intervention of the Hungarian government. Less than a month after OMV announced its takeover intentions, the Hungarian parliament passed what has been nicknamed the “Lex-Mol Bill”, which protects strategic companies. There are fears that geo-politics is trumping economics, with the Hungarians retreating to protectionism – or at least protection from the Austrians, given the turbulent history between the two nations.
Peter Skinner MEP, a member of the Economic and Monetary Affairs Committee for the past 13 years, thunders: “This is not a good step. The Hungarian authorities are wrong to do this and they shouldn’t have allowed it to happen. This also throws light on concerns that the EU is not as open as its supporters say.”
A walk around Budapest shows just how important the oil and gas company is to the Hungarians. The city is filled with signs for Mol petrol stations, much as BP dominates parts of the UK market. A source close to Mol points out that the company never asked for Lex-Mol – that it was a government decision. However, the source argues that OMV is mischief making, citing German Chancellor Angela Merkel as just one senior EU figure who has called for curbs on takeovers of major national companies.
“It’s very convenient of OMV to throw in the EU equality issue,” says the source. “But this is not an unusual type of stance for an EU country to take.”
It seems that the European Commission does not agree. The Independent on Sunday understands that Charlie McCreevy, the Internal Market and Services Commissioner, has decided to challenge the Hungarian government over Lex-Mol. Already his department has sent a letter to the government explaining that it is examining the issue, and has received a response.
Although Mr McCreevy’s spokesman says the commission will not make a formal decision on its next move until a “later meeting” – believed to be the end of this month – a source says this will simply rubber-stamp the views of legal experts in Brussels. “The opinion there is that this is in contravention of EU law,” the source explains.
Should the commission formalise this decision, Hungary will have another chance to respond, and after that the case could be taken to the European Court of Justice. So this already drawn-out process could go on another two years before the court makes a judgment.
More immediately, a second EU probe of the takeover resumed late last week. At the start of May, Competition Commissioner Neelie Kroes suspended her investigation after just two months, arguing that she had not received all the information needed to proceed. It is understood OMV has since sent in more detailed documents on petrol stations. This is one of the areas where OMV and Mol’s activities are most likely to overlap, so causing monopoly issues.
Sources close to OMV confirm that the company would be willing to sell off a percentage of the petrol stations, as well as at least a share of one of the combined entity’s power plants. “OMV has now submitted all the information the commission required,” says one source. “The clock has been turned back on.”
As a result of the probe, Ms Kroes will detail the market impact of a merger, and the Mol team hope this will prove that the deal would create major monopolies. They are also optimistic that any solutions to this, such as asset sales, will be counter- productive for the predator. A Mol backer says: “The refining capacity synergies are at the heart of the value of the deal. Being forced to sell those assets would undermine what OMV is trying to achieve.”
A final issue is the challenge that OMV is taking to the Hungarian courts over Mol’s annual general meeting in April. OMV was already angered that its 20.2 per cent stake in Mol gave it only 10 per cent of the votes under company rules; now the Austrians want resolutions at the AGM overturned. OMV argues that “friendly” shareholders – those that have about 40 per cent of shares formerly held by Mol, such as Czech power group CEZ – were directed to vote on several key issues with management. Among those resolutions was an increase in the limit on shares that Mol could buy back from the market, so making any hostile takeover more tricky.
A Mol adviser says the shares were sold or loaned to these shareholders on an “arm’s-length basis”, meaning they could vote as they wished. Also, complaints that some of OMV’s key shareholder allies were not even allowed into the meeting have been dismissed on the grounds that they had several months to produce the documentation that would have let them vote.
It is not clear which side will win this long fight. One industry figure expresses the hopes of many in Brussels when he says that the dominant argument driving the saga’s fate should be over market concerns rather than geo-political ones. “Ultimately, if there is a compelling price on the table and monopolies are avoided, shareholders [in both companies] should end up winning the day.”
