Austrian energy firm OMV withdrew its takeover bid for Hungary's MOL -- a move that will lead to a fierce competition and could benefit Gazprom.
Pressure from the EU Commission led partially state-owned Austrian energy firm OMV to withdraw its $18.4 billion hostile takeover bid for Hungary's privately owned MOL on Aug. 6. The companies' strengths would have complemented each other had the merger taken place. However, the two firms now will go head to head in competition over the Balkans. This rivalry could end up benefiting Russian energy firms -- particularly Gazprom.
The partially state-owned Austrian energy company OMV withdrew its $18.4 billion hostile takeover bid for Hungary's privately owned MOL -- the largest company in the country -- on Aug.6. The decision came under pressure from the European Union commission, which was concerned the merger would hurt consumers and competition, notwithstanding the efforts OMV made to try to allay Brussels' fears by selling off parts of its refining network to Vienna and Bratislava.
MOL's hostility toward the OMV offer and Brussels' disapproval of the takeover effectively kill the merger. The failed bid leaves OMV and MOL to fight out their rivalry over the Balkans. Their different strengths would have perfectly complemented each other in a bid to dominate the Central European energy market: MOL has the infrastructural connections to the Balkan Peninsula, and OMV has the necessary cash and supplies. Instead the two companies will compete in a dead heat with no clear winner expected to emerge any time soon. The stalemate could allow Russian energy players to profit from the disunity between MOL and OMV. In particular, Russian natural gas monopoly Gazprom -- which has expressed interest in taking over MOL in the past and has a close working relationship with OMV -- could look to join the fray between the two Central European energy giants.
OMV first bid for MOL in 2007, when OMV increased its stake in the Hungarian firm from 10 percent to 20 percent. The move was met with fierce resistance from the Hungarian government and MOL's management. In part, the Hungarians were wary of OMV's close and strong links to Gazprom, particularly because there was a fear that the Russian behemoth was using OMV to try to take over MOL.
The links between Gazprom and OMV are indeed strong and could grow even stronger. Gazprom supplies 80 percent of Austria's natural gas imports and around 64 percent of Austria's total domestic consumption. Austria is also one of the main hubs for both the storage and transportation of Russian natural gas to Central Europe. Gazprom, however, does not outright own any portions of OMV stock. The Austrian government holds 31.5 percent and an Abu Dhabi-based investment firm holds 17.6 percent. The rest of OMV's stock, 50.9 percent, is floated and held by individual unnamed investors. Should it want to, Gazprom could attempt to gain greater control of OMV either by buying up OMV's stock directly or through friendly investors.
An OMV takeover of MOL is therefore perceived as a direct threat to Hungary's national interest of keeping its energy infrastructure independent from the Russians, who are known for using energy for political purposes -- especially in Hungary's neighborhood, like Ukraine, Belarus and the Czech Republic. (Ironically, the failed OMV bid for MOL could lead to greater direct Gazprom involvement in MOL, as OMV may now consider selling its 20 percent stake in the Hungarian company directly to the Russian behemoth.)
However, Budapest's concern was not just about OMV's ties to Gazprom. MOL is also opposed to a close relationship with OMV because of the two firms' heated competition for influence in the region. MOL does not want to become a junior partner to OMV -- which is not surprising, considering Austria and Hungary's history and centuries-long competition for influence in Central Europe and the Balkans. The Balkans, parceled out into small disunited states, are a natural battleground for Austria and Hungary. With the fall of the Iron Curtain, the geopolitical map of the Balkans and Central Europe began looking as it did before 1916, when Vienna and Budapest were locked in an uneasy alliance based on carefully carving out each other's spheres of influence under their dual monarchy, the Austro-Hungarian Empire. Since no such alliance exists today, save through their membership in the EU, Austria and Hungary can revive their traditional competition over the Balkans.
This competition, however, is most likely to be a draw in the foreseeable future. OMV wanted to buy MOL in the first place because MOL was (and still is) such a perfect complement to OMV's combination of cash and access to a reliable supplier, Gazprom. The one thing MOL has that OMV does not is the infrastructural links to the Balkans -- something Hungary has thanks to its legacy behind the Iron Curtain. Hungary is also closer to the Balkan markets.
Central Europe really is where the competition for energy takeovers and investments in Europe is taking place. The Balkans represent a particularly lucrative market because governments there are looking to privatize their energy infrastructures in order to bring in some much needed infrastructural investments. MOL and OMV also can compete in the Czech Republic and Slovakia (where OMV does enjoy physical connections), but very few other options (options for battlegrounds for the two firms? YES) exist. The big players, such as Poland, Italy and Germany, have energy behemoths of their own and guard their markets ferociously.
MOL and OMV's competition for control of Croatian state-owned energy firm INA is an example of what will come in terms of the two firms' rivalry. MOL owns 25 percent of INA outright, with the Croatian government holding 44 percent. OMV expressed interest in buying 26 percent of INA in July, which quickly prompted MOL to suggest it may take over INA as a preemptive move against OMV. Now that OMV's bid for MOL seems to have fallen through, the competition over INA could resurface as the main battleground for domination of the Balkan energy markets. Croatia is strategically located just south of both Austria and Hungary, thus allowing the energy company that ultimately grabs INA to cut off the other from the rest of the Balkans. In the meantime, OMV could look again into making a bid for the Serbian energy firm NIS, now that Gazprom's attempts at buying NIS seem to have failed. (If OMV did make a bid for NIS, how would it affect its standing regarding MOL, and would MOL try to make a countermove? Serbia is in the Balkans… it matters because the whole piece is about their competition in the Balkans)