(AFP) – Sep 25, 2007

VIENNA (AFP) — Austrian oil group OMV announced a takeover offer Tuesday for Hungarian counterpart MOL aimed at creating a central European powerhouse, but its hostile approach ran into immediate resistance.

State-controlled OMV said it was ready to pay 128 euros per share in cash to MOL shareholders, valuing the group at 14 billion euros (19 billion dollars) according to an AFP estimate.

The proposal was swiftly rejected by the Hungarian government and MOL management and is likely to become a hot political issue given opposition in Hungary to foreign takeovers in the strategic energy sector.

The Austrian group first made an approach to MOL in June, but it was emphatically rebuffed by the company and the government, with Hungarian Prime Minister Ferenc Gyurcsany vowing to oppose a takeover "by all means."

"The process is likely to be long and drawn out with a quick resolution unlikely to be found," investment bank Merrill Lynch advised in a research note sent to its clients.

OMV is seeking at least 50 percent voting control in MOL, requiring the removal of a current 10-percent limit on voting rights for individual shareholders.

A further obstacle is that MOL controls about 40 percent of its own shares following a share buyback scheme initiated by management, OMV said, preventing the Austrian group from gaining voting control.

"OMV is therefore seeking to engage in active discussions with the independent shareholders, the European Commission and other stakeholders in MOL," the group said.

"The removal of these impediments would allow MOL's independent shareholders to decide on the merits of the offer."

OMV, which said it now owned 20.2 percent of MOL, announced in June that it wanted merger talks with the group after raising its stake to nearly 19 percent.

OMV chief executive Wolfgang Ruttenstorfer called on MOL to take into account the expansion of the European Union and growing competition among energy companies for supplies.

Hungary joined the EU along with nine other new members in 2004.

"The time has come to think beyond national interests and find regional solutions to the issues surrounding the highly competitive oil and gas industry," said Ruttenstorfer.

The Hungarian government again rejected the idea of the takeover on Tuesday and MOL management said the approach "does not merit further consideration," adding that the group had no intention of negotiating with OMV .

"The Hungarian government has already said that it considers the approaches from the Austrian company as an unfriendly act, a hostile takeover offer," said a government spokesman in Budapest.

"Like other countries in the European Union, the Hungarian state wants a way of controlling, in line with EU rules, those companies with a strategic role in public services."

The Hungarian justice ministry proposed a draft bill to protect energy groups from hostile takeovers at the end of last month, which would come into force on January 1 next year.

"Our aims have not changed and a law is waiting for a decision from parliament," said the spokesman, referring to the draft takeover law.

Shares in OMV fell sharply in morning trade on the Vienna stock exchange because of the high offer price and the prospect of a protracted battle, traders said.

Shares in OMV were down 5.62 percent at 48.67 euros in midday on the Vienna stock exchange.

OMV chief Ruttenstorfer told a conference call that the company had "overwhelming support" for its merger plan from its institutional shareholders, many of whom also hold significant stakes in MOL.

Analysts said the chances of success for OMV depended on the position taken by MOL and the Hungarian government.

"It seems very unlikely that the Hungarian position will change, which makes the operation almost impossible," said an analyst for bank Unicredit in Vienna, Alfred Reisenberger.

OMV is 31.5-percent owned by an Austrian state holding company. The Abu Dhabi-based International Petroleum Investment Company holds 17.6 percent with the remaining 50.9 percent owned by institutional investors.

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