The Prague Post Online: Business: ČEZ and MOL join forces

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November 22nd, 2008

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ČEZ and MOL join forces

Move strives to block OMV takeover bid

By Michael Heitmann
Staff Writer, The Prague Post
September 5th, 2007 issue

Czech energy giant ČEZ and Hungarian oil and gas company MOL have announced their decision to forge a strategic alliance. The move, announced Aug. 30, will help block a bid by the Austrian energy company OMV to take over MOL.

As part of the deal, ČEZ will purchase 10 percent of MOL, with the companies planning to build two new gas-fired power plants at MOL refinery sites in Bratislava and Százhalombatta, Hungary.

MOL and Hungarian officials have presented the deal as necessary to fend off foreign — and in particular Russian — influence. OMV has strong ties with Russia’s state-owned gas company Gazprom; in 1968, the company was the first Western firm to reach a gas delivery agreement with the Soviet Union.

“It’s the government’s opinion that OMV’s bid was hostile, and so the government had to prevent the buyout,” Lajos Csaba, spokesman for Hungarian Prime Minister Ferenc Gyurcsány, told The Prague Post.

As part of its takeover bid, OMV had raised its stake in MOL to 18.9 percent in June, spending approximately 1 billion euros ($1.37 billion/27.6 billion Kč) on the acquisition. ČEZ’s purchase, along with a proposed law from the Hungarian Justice Ministry that would prevent hostile takeovers of strategic companies, should put an end to OMV’s bid, analysts say.

ČEZ, which is controlled by the government, has been on a shopping spree in Eastern Europe for at least three years, but many question what benefit the MOL deal will bring to the company, criticizing it as an attempt to rationalize state protectionism.

ČEZ was opaque in making the announcement, which it positioned as a natural extension of existing strategies.

“The countries in which MOL operates correspond with the target region of ČEZ’s foreign expansion,” said Chairman and Chief Executive Martin Roman.

One reason for the deal could be that a hostile takeover of MOL by a foreign firm could set a precedent and endanger ČEZ’s independence, said Vladimír Štěpán, an energy consultant with ENA Ltd.

While both governments were “probably” involved with the deal, he added, that does not mean ČEZ’s interest in MOL is unreasonable.

“Hungary needs to import electrical power, therefore it’s only logical that ČEZ is interested,” he said.

Earlier this year, MOL’s chief executive, Zsolt Hernadi, asked the Austrian government to sell its 31.5 percent stake in OMV before any meaningful talks could begin about combining the two companies, the Hungarian newspaper Vilaggazdasag reported. Like OMV and ČEZ, MOL is partially owned by its national government.

Despite the jockeying of national governments, Štěpán still expects further consolidation in Central Europe’s energy market, though companies could face problems if they run up against the European Union’s energy policy, which aims to unbundle ownership of gas and electricity distribution.

Michael Heitmann can be reached at mheitmann@praguepost.com

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