Austrian oil and gas company OMV AG withdrew its hostile $20 billion bid for Hungarian rival MOL Nyrt after objections from the European Commission, ending one of Europe's most rancorous takeover battles.
The outcome is a big defeat for OMV Chief Executive Wolfgang Ruttenstorfer, who had argued that Central European energy companies needed to team up or risk being gobbled up by cash-rich Russian giants like OAO Gazprom.
It is also a vindication for MOL, which has long argued that the divestments any merged company would have to make to satisfy European antitrust laws would undermine the economic rationale for a tie-up.
In an interview, Mr. Ruttenstorfer said he was disappointed the European Union had demanded so many concessions from OMV. "We would have expected more support from the competition authorities, given the EU's policy that the oil market has to consolidate," he said.
The merger, he said, would have created a Central European giant capable of blocking the advance of bigger rivals like Russia's OAO Lukoil that are expanding aggressively into Europe. "We have a rather fragmented oil and gas industry in Central and Southeastern Europe and increasing competitive pressure from the east, not only from Russia but also Kazakhstan and Azerbaijan," he said.
In a statement, MOL said OMV's move recognized the Hungarian company's argument that the "irrational" plan for a tie-up raised "very serious competition issues, was inherently value-destructive and would be against economic and strategic rationale."
The OMV-MOL battle had depressed OMV's share price, and analysts welcomed the Austrian surrender. James Neale at Citigroup said the move removed uncertainty and an "overhang in the shares based on fears of a potentially lengthy battle for control of the Hungarian company." OMV shares closed up 1.3%, or 54 European cents, at 42.86 euros ($66.27) on the Vienna stock exchange. MOL's shares closed down 6.3% in Budapest to 18,175 forints ($119.64).
Separately, OMV reported a 66% increase in second-quarter net income to 684 million euros ($1.06 billion), driven by higher oil prices. Earnings before interest and tax rose to 1.08 billion euros, beating analysts' forecasts.
OMV disclosed in June 2007 that it had raised its stake in MOL to 20% and proposed a merger; it followed that with a conditional offer of 32,000 forints per MOL share that valued the whole company at around $20 billion. MOL put up a stalwart defense, aided by the fact that 40% of its equity was held as treasury shares or by friendly institutions.
The merger would have brought together the only two integrated oil and gas companies active in Central Europe. That rang alarm bells at the commission, which worried about concentration in the retail gasoline market and in refining. An investigation it launched in March found that gas-station owners and wholesalers, consumer groups and truckers all had "serious concerns" that the merger would drive up fuel prices, it said.
The EU was particularly worried that the combined company would end up owning two big refineries, one in Austria and the other across the border in Slovakia, and indicated that one might have to be sold to win approval for the deal. As a remedy, OMV proposed combining them and selling a stake to a third party. Brussels said that was unacceptable, though it stressed in a statement Wednesday that it had "reached no final conclusion on the case." It was then that OMV decided to withdraw its bid.
Mr. Ruttenstorfer said OMV will keep its 20.2% stake in MOL, calling it an "entrance ticket" to further consolidation of the region's energy sector. MOL said it was closely monitoring "potential opportunities" with regard to OMV's stake, without elaborating.