Russians enter Hungary as Austrians exit

OMV, Austria’s oil and gas company, has at last accepted defeat in its long battle to win control of Mol of Hungary, selling its 21 per cent stake for about €1.4bn. The really striking feature of the deal is the price that Surgutneftegaz, the Russian buyer, is paying: over Ft19,200 per share, almost double the market price of about Ft9,900 last Friday. OMV had appeared to be sitting on a substantial loss, but it has emerged from its Hungarian adventure roughly breaking even.

So why is the minority stake stake in Mol worth so much?

Mol’s share price this morning does not reflect any confidence that a full bid is imminent. When trading re-opened in Budapest this morning, they were around Ft11,000. So Surgut has secured itself an instant loss of about €600m. The company can afford it; it is one of Russia’s few financially secure businesses, with an estimated cash pile of $20bn, but the deal still raises questions over its strategy.

One explanation is political. Gazprom, the state-controlled gas company, has already built relationships with Hungary in pipelines, gas storage and marketing, and the Surgut deal puts another leading Russian company – which also, inevitably, has close ties to the Kremlin – into a powerful strategic position.

There has been persistent speculation about a merger of Rosneft with Surgut, which would bring it more closely under the control of the Russian state. (Rosneft is 90 per cent state-owned.) However, that speculation has recently been played down by a Russian minister.

The other explanation for the deal is that Surgut is following the same logic as OMV. It expects that one day, there is bound to be further restructuring of the central and eastern European oil and gas industry, and it wants a strategic presence there ready for when it happens, even if that day is still a few years off.

If that is indeed Surgut’s thinking, then it might well think it worth paying a substantial premium – which it can well afford – to secure the shares. Much of Mol’s equity locked up under management control or held by friendly investors, so the opportunity to acquire a large holding does not come up very often.

The problem is that Mol is a very securely-defended company. Its protections against takeover have proved extremely effective, to the chagrin of OMV and the frustration of many Mol shareholders.

What makes Surgut think it can succeed where OMV has failed?

UPDATE Mol has issued a statement, saying it considers Surgut a “financial investor”, and says it does not comment on ordinary transactions between shareholders.

Rennaissance Capital, in a note, says the logic of the deal for Surgut – referred to here as SNGS – is compelling:

Strategic rationale is strong… MOL operates two principal refineries in
Hungary and Slovakia with a combined capacity of 13.6mnt pa, with the majority
of processed crude coming via the Druzhba pipeline from Russia. This would be a
material addition to SNGS’s own crude processing capacity of 22.0mnt pa at its
Kirishi refinery, compared with the company’s annual crude output of around
60mnt.

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