VIENNA, Sep 26 (Reuters) Austrian oil and gas group OMV faces a tough struggle with its conditional billion takeover bid for Hungary's MOL and should consider selling its stake, fund managers and analysts said.
OMV has been vying for a pole position in the ongoing consolidation of central European energy markets, which Russia also has its eye on. Yet the Austrian firm has found itself bogged down in a standoff with its Hungarian peer since nearly doubling its MOL stake to 18.6 percent in June.
In a conditional offer on Tuesday, OMV said it now held 20.2 percent and was ready to pay 32,000 forints (0) for every MOL share. However, this latest approach was swiftly rebuffed by the Hungarian firm, which said the planned bid undervalued its business and did not merit consideration.
While there was no doubt about the strategic reasoning for the merger, MOL shares stayed well below OMV's offer, indicating the market believed the Austrian firm stood no realistic chance, said fund manager Walter Harecker at Constantia Privatbank.
''The two companies are a pretty good fit,'' Harecker told Reuters. ''But I fear OMV's undertaking will not be met with success, which leaves the question whether such an offer makes sense at all. Yet, it was probably the only possible step.'' Through a merger, OMV would gain access to refineries in Slovakia, Hungary and Croatia as well as to a pipeline link for Russian gas. The two companies would have a joint refining capacity in excess of 860,000 boe/d.
Should the merger fail, it would be Chief Executive Wolfgang Ruttenstorfer's second fruitless pursuit of a major deal following OMV's attempt to combine with Austria's top utility Verbund last year.
OMV's said on Tuesday it had decided to spell out the terms of an offer after a roadshow had shown that a majority of investors favoured the two companies joining forces.
UNWILLING BRIDE OMV's offer is conditional on MOL removing a 10 percent voting right cap and MOL's board and friendly institutions cancelling or neutralising a 40 percent stake they controlled.
OMV also said it wanted to start talks between MOL shareholders and management.
Yet given a freefloat of less than 40 percent divided between small shareholders, it was hard to fathom how much pressure could be exerted on MOL's management, said analysts.
Some were also sceptical about OMV saying it would give itself two to three years for the consolidation.
''If OMV's attempt fails, as MOL's comments would point to, we believe that OMV's management would be tempted to keep the 20 percent stake and attempt to force a merger in the longer term,'' said Goldman Sachs analysts Michele della Vigna in a note.
''The best solution for OMV shareholders would instead be for OMV to sell the 20 percent MOL stake and increase distribution to shareholders,'' della Vigna added.
Harecker believes a solution should be found within a year.
''All those billions which are parked in the MOL stake could be put to a much better use,'' he said.
MOL launched an aggressive share buyback program to fend off OMV. And more resistance expected from the government.
Hungary has drafted legislation to stop foreign companies owned or part-owned by the state from acquiring Hungarian energy companies and said on Tuesday it would keep pursuing this law.
The Austrian government holds 31.5 percent of OMV.
''MOL... could well continue the buy backs,'' said Credit Suisse analyst Lev Snykov in a note to clients. ''(MOL) would not be too sensitive towards pricing or gearing in defending itself from a potential takeover, making OMV's chances close to zero''.
Yet others are more positive about OMV's perspective.
''Clearly the firm rebuttal of MOL and negativity from the Hungarian government let the market believe the offer is doomed,'' said Merrill Lynch analyst Alastair Syme in a note.
''But we are not so sure -- the commercial and strategic building blocks of a deal now look to be in place and, with lobbying, might well prove successful.'' REUTERS SR RN1942