VZCZCXRO8183
OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVI #2493/01 2691154
ZNR UUUUU ZZH
O 261154Z SEP 07
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8660
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

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#