VIENNA Austria's OMV (OMVV.VI) is determined to press ahead with its takeover battle for Hungarian peer MOL, yet the only certainty about the outcome is that any solution will take a long time, possibly up to three years.
MOL's MOLB.BU management controls around 40 percent of its own stock and has the upper hand for now as it fends off OMV's unsolicited approach. But it, too, faces an uphill struggle as shareholders grumble and the EU prepares legal action.
OMV holds just over 20 percent of MOL and has said it will offer 32,000 forint ($181) per MOL share if MOL removes a 10 percent voting right cap and if it cancels or neutralizes the 40 percent stake its board and friendly institutions control.
The Hungarian firm has rejected the proposal, which would value MOL at up to $20 billion, saying a merger would destroy shareholder value and would not get regulatory approval.
To thwart OMV's efforts, MOL's management launched an aggressive share buyback while the Hungarian government passed new legislation aimed at protecting strategic sectors, which investors say was designed to protect MOL from OMV.
The European Union has criticized the new law, and OMV hopes to enlist that body's support to roll back the legislation, take away Budapest's special rights and force MOL's management to give up control over the 40 percent stake.
Last week, EU Internal Market Commissioner Charlie McCreevy wrote to the Hungarian government threatening to extend action against the country if the new law prevented companies from other EU states buying into MOL.
The Austrian firm has repeatedly said it has plenty of time to wait for the outcome of the legal battle -- yet time may not be on its side.
MOL's shares were trading at 27,400 forint -- substantially below the potential bid price -- at 1540 GMT on Thursday, indicating the market believes there is a strong chance OMV will fail in its attempt.
MOL NOT IDLE
MOL officials privately say that even if they do nothing, the process will take at least two years.
Yet MOL is far from being inactive. It has lined up Czech power firm CEZ CEZPsp.PR to take a 10 percent stake and can also enlist OTP Bank OTPB.BU -- one of the region's biggest listed firms -- for support as OTP Chairman and Chief Executive Sandor Csanyi is also MOL's deputy chairman.
MOL can also count on the Hungarian political elite.
In a country where domestic political strife has deepened since anti-government riots a year ago, the cause of safekeeping the national oil champion has produced rare unity among both political sides who have vowed to do everything to protect MOL.
Hungary's anti-competition authorities have also said the deal would raise objections as the merged entity would gain a near monopoly in both Hungary's and Slovakia's fuel market.
MOL and the Hungarian government say that as the Austrian company is part owned by the state it would effectively be a re-nationalization of a private company.
Given current battle lines, OMV Chief Executive Wolfgang Ruttenstorfer acknowledged at the Reuters Central European Investment Summit on Wednesday that for now it had at best a slim chance of winning at a shareholder meeting.
OMV is now preparing for legal action and is attempting to enlist help from minority shareholders. The company has not given details of any legal action.
Templeton Asset Management, one of the biggest asset managers in the world, has already come out in support of OMV's approach and warned that Hungary risked losing investor confidence due to government meddling in the market.
Analysts say a shareholder revolt may be OMV's best short-term hope as even people close to MOL will admit that if it came to a vote, most minority shareholders would likely side with the Austrian firm.
While those votes would not be enough to defeat MOL's managers, it would embarrass the firm and put pressure on it to at least discuss OMV's proposal.
A good preview of OMV's chances in a legal battle may come next week when the EU's top court rules whether a German law capping voting rights at German carmaker Volkswagen (VOWG.DE) to protect it from a takeover is legal.
One consequence of the battle between OMV and MOL is that both firms risk getting distracted from regular business, but with no other takeover targets in sight, both companies say they can afford to be patient.
"Since the beginning we said this consolidation could take two to three years," Ruttenstorfer said at the Reuters Central European Investment Summit. "But we are pretty certain something ... will happen."
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