MOL Shareholders Approve Safeguards Against Stealth Takeover; Surgutneftegaz Excluded from AGM

Never Again?

Shareholders in Hungarian oil and gas firm MOL yesterday took steps to safeguard against a potential takeover attempt, amending the firm's articles of association to build MOL's defences against a "stealth" move to take control of the company. The decision by shareholders to approve a series of recommendations by the board of directors advocating this was a direct response to fears that Surgutneftegaz, the fourth-largest Russian oil firm, has that very strategy in mind after it acquired a 21.2% stake in MOL last month from Austria's OMV, which itself was thwarted last year in an attempt to take over MOL (see "Related Articles").

Since Surgutneftegaz's surprise acquisition of the minority stake in MOL a succession of Hungarian government officials, along with MOL senior executives, have come out against the Russian firm's purchase, calling Surgutneftegaz an unfriendly shareholder and accusing it—without much in the way of actual evidence—of having designs on seizing control of MOL. A variety of accusations have been levelled, from accounts suggesting Surgutneftegaz is acting on behalf of Russia's state-run Rosneft to others speculating that Surgutneftegaz is doing the bidding of the Russian presidential administration at the Kremlin in trying to obtain insider information on (and undermine) the Nabucco gas pipeline consortium, of which MOL is a founding member.

Surgutneftegaz's claims of wanting a partnership with MOL, taking advantages of the synergies of its own upstream assets and MOL's downstream capabilities, have largely fallen on deaf ears in the supercharged political environment since the stake acquisition. Accordingly, yesterday Surgutneftegaz was excluded from MOL's annual general meeting (AGM), ostensibly on the grounds that the Russian company failed to inform the Hungarian government and MOL of its plans to acquire the stake before it actually did so. Hence, Surgutneftegaz was not included on MOL's stock register—leading to its exclusion from the AGM. Surgutneftegaz responded angrily, saying that it was prevented from attending the AGM for "unknown reasons" and that it had "satisfied timely all necessary requirements to be included into the shareholder register of the company."

In the event, then, MOL shareholders—those who were allowed to participate in the AGM—approved a series of amendments to the company's articles of association, tightening holding disclosure regulations and effectively preventing any hostile takeover attempt from succeeding. Among the changes include:

• A requirement that holders of 2% or more of MOL shares will be obliged to report the composition of the shareholder group they represent and identify the "ultimate benefiting owner" of the stake. Failure to comply with the amendment will result in suspension of voting rights.
• A modification to MOL's statute so that the AGM may only decide on the dismissal of a single board member. No further dismissals will be possible for three months afterward.
• A requirement that a vote of a 75% majority of shareholders, rather than the previous simple majority, is needed to dismiss members of the board. This was increased in order to "operate reasonable mechanisms against a creeping control" by a shareholder bent on a takeover attempt.

Shareholders also gave the board of the directors their approval to increase MOL's share capital through a private placement or convertible bond issue. The board now has the right to increase MOL's share capital—and thus dilute Surgutneftegaz's stake potentially—by up to 30 billion forints (US$130.7 billion) in one or more steps up until April 2014. The AGM also upheld the Hungarian state's single preferential share in MOL giving the government its special veto rights in company strategy issues, even if the share is sold or transferred. What is more, the AGM stipulated that the holder of the preferential share will have the right to veto proposals supported by MOL shareholders but opposed by the board.

Outlook and Implications

Following the AGM, MOL's chairman Zsolt Hernadi said that, "The approval of the items on the agenda by the shareholders at today’s meeting puts the company in a new position to defend itself against stealth acquisitions and to maintain financial flexibility." Indeed, the measures passed by MOL shareholders yesterday are geared to prevent Surgutneftegaz—or any other shareholder, for that matter—from even attempting a hostile takeover, let alone succeeding in such a move. Clearly, following OMV's hostile takeover attempt, MOL's senior management and the Hungarian government are taking no chances with Surgutneftegaz.

For its part, Surgutneftegaz has continued to portray itself as a victim of Hungarian xenophobia, saying that its intentions are simply "to build a mutually beneficial and long-term partnership on the basis of synergies between the strong positions of both companies in the best interests of all shareholders," according to a letter signed by the Russian oil firm's general director, Vladimir Bogdanov. MOL and the Hungarian government have no doubt been gripped with fear over Surgutneftegaz's intentions, and while it may be true that the Hungarian response has been overly aggressive and critical, it is also true that Surgutneftegaz has never flatly ruled out a takeover attempt of MOL either.

Now, after yesterday's AGM, such a move becomes that much more difficult to execute successfully, something which MOL and the government are hoping will convince Surgutneftegaz not to even try in the first place. The Hungarian government and MOL's board of directors are keen to ensure that the firm remains independent; Surgutneftegaz, while not explicitly saying it is committed to that principle, said that its exclusion from yesterday's AGM once again "prevented us from explaining to MOL's management and to you, its shareholders, our intentions and hopes for future cooperation." Given the hostility that MOL and the Hungarian government have shown towards Surgutneftegaz thus far, the prospects for "cooperation" between MOL and Surgutneftegaz appear quite dim at present.

Related Articles

Austria: 23 April 2009: OMV Chief Probed for Insider Trading

Hungary: 21 April 2009: MOL Shuts Russia’s Surgutneftegaz Out of AGM

Hungary: 20 April 2009: MOL, OTP Bank Conduct Share Swap; New Hungarian PM Reiterates Government Position on Surgutneftegaz

Hungary: 9 April 2009: Political Row Deepens over Surgutneftegaz's Stake in MOL

Hungary: 6 April 2009: Financial Watchdog in Hungary Launches Probe Into Surgutneftegaz Acquisition of MOL Stake

Hungary: 2 April 2009: MOL Calls Surgutneftegaz Stake "Unfriendly"

Hungary: 1 April 2009: Hungarian Government Warns Surgutneftegaz to Refrain from Hostile Takeover Attempt of MOL

Hungary: 31 March 2009: MOL Vows Pursuit of Independent Strategy Following Surgutneftegaz's Minority Stake Purchase

Hungary: 30 March 2009: Surgutneftegaz Buys Minority Stake in Hungary's MOL in Surprise Expansion Move