Dominic Swire in Prague -

The decision by Austrian oil and gas firm OMV not to relinquish its acquired stake in Hungarian counterpart Mol could lead to a paradoxical situation in which OMV turns from predator to saviour of Mol's independence.

Central Europe's energy sector was blown wide open by OMV's announcement August 6 that it's no longer interested in purchasing Hungarian oil and gas firm Mol. Yet OMV's decision to keep the 20.2% stake in the company that it's gradually built up over the past year during its takeover attempt of the Hungarian firm is likely to prove tactically profitable in the long run, and could ultimately protect the Hungarians from a Russian buyout.

When Mol's Chief Executive Gyorgy Mosonyi heard that OMV weren't going to let go of their stake in his company he described the move as "strange."

"They are a competitor, and while it creates value to the extent that Mol is growing, it is not an appropriate way for them to use their financial resources," he was quoted as saying in the Financial Times.

OMV has been courting Mol for over a year in a belief that consolidation is the only way that energy firms in Central Europe can fend off approaches from larger rivals, especially those from Russia, such as Lukoil or Gazprom Neft. Should either of these link up with Mol, they could not only swallow OMV whole but also increase what many already fear is an over reliance on Russian energy in Europe. "Although each have strong positions in their own markets, these individual markets remain small and both companies are still lacking in scale when compared to the oil majors," says Marc Seris, senior director of downstream at PFC Energy.

Despite this, Mol has fought OMV's overtures. The Hungarians were afraid that if the OMV deal went ahead, they would effectively be handing control of one of the country's most important companies to a foreign government - OMV is 31.5% owned by the Austrian state. To this end, Mol's strategy has been to buy back as many of their own shares as they could, causing their value to soar.

August 6 marked a new twist in the tale as OMV officially renounced their intention to buy Mol, putting the blame firmly on the shoulders of the EU, which had been arguing that a merger between the two companies would create a monopoly. "The European Commission has indicated that it would not accept commitments that OMV had proposed; since other commitments would be unacceptable to OMV, OMV has decided to withdraw the merger notification filed with the European Commission on January 31, 2008," read a statement from OMV explaining their decision.

Yet despite this, OMV is not ready to let go of its stake, saying that it's "now considering various options to maximize the value of its 20.2% stake in MOL and to benefit from value creation in the consolidation process."

White knight

Exactly what form this "value creation" will take remains to be seen, but Raiffeisen Group energy analyst Philipp Chladek says it's a move that puts OMV in a very interesting position for a number of reasons. Firstly, Chladek points out, OMV and Mol are not as vulnerable as they may seem to being snapped up by Russian energy giants due to the EU's reciprocity principle, or what has been dubbed the "Gazprom Clause." This states that a company from outside the EU is unable to take over a strategically important company inside the EU without a specific agreement between the EU and the buying firm's country. The clause has been criticized as specifically designed to keep Russian companies out of Europe. Russia is currently in the process of negotiating an agreement with the EU on this front, but there is no sign of a breakthrough so far.

Even if a deal were reached between a Russian firm and OMV or Mol, there could be a further hurdle in getting round the same anti-trust laws that scuppered OMV's bid. Lukoil, for example, owns a number of refineries in the region, notably in Romania and Bulgaria, so could constitute a monopoly should it purchase Mol.

On top of all that, as things stand, any company that got past those first two obstacles would be faced with a further dilemma, namely how to persuade OMV, currently the largest single shareholder in Mol, to sell its stake. As OMV's reason for chasing Mol in the first place was a concern about being dwarfed by a larger competitor, it seems unlikely the company is going to sell so easily. This could result in the paradoxical situation of OMV effectively becoming Mol's "white knight," and protecting its independence. "There's no way past OMV for any company that wants to take over Mol," Chladek says. "As long as OMV doesn't sell its shares in Mol to anybody else, Mol can remain independent - that's definitely the case."

In the meantime the European Commission is continuing legal action against what OMV sees as unfair protectionist measures. These include a so-called "golden share" rule that gives the Hungarian government preferential rights in companies; and the limitation of shareholders' voting rights to 10%. Should Mol lose this case, as seems likely following a recent precedent when the European Court of Justice overturned similar measures against Germany's Volkswagen, OMV could well be in contention for acquiring Mol once again.

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