OMV, the Austrian oil and gas company, proposed a friendly merger with its Hungarian rival Mol last month after raising its stake to 18.6 per cent.
Gyorgy Mosonyi, Mol’s chief executive, revealed the approach on Monday as he set out a defence strategy that included a plan to double the dividend pay-out by 2008 and boost earnings growth to 2010 to an annual average 6.5 per cent.
Mol’s board rejected the overture from OMV, made in a letter on June 25, but has only now made it public. OMV reportedly suggested a price of Ft30,000 a share, slightly above Mol’s share price last night of Ft29,695.
“They clearly had an intention to make a cash offer to Mol’s shareholders,” Mr Mosonyi told the Financial Times. “We decided that the proposal had no merit: it had no benefit to shareholders and could be value-destructive.”
OMV has repeatedly said it is seeking “friendly” talks about opportunities for co-operation with Mol. But in a recent interview with the FT Wolfgang Ruttenstorfer, OMV’s chief executive, suggested that the best way for the two companies to work together would be a full merger. He refused to rule out the possibility of a hostile bid.
Mr Mosonyi argued that merging Mol with its leading local competitor would cause problems with the competition authorities in Hungary, Austria, Slovakia and Romania, meaning that large-scale disposals would be needed for the deal to be allowed to proceed.
Mol also believes regulators could raise concerns over the Austrian government’s 31.5 per cent stake in OMV.
“The completion risk in their proposal is extremely high,” Mr Mosonyi said. “It is not a question of price; it’s a question of their chances of having the ability to complete the transaction.”
Mol is backing up its rejection of OMV’s approach with a promise to raise its dividend pay-out ratio “towards 40 per cent” from its 21 per cent level last year.
It also said that after a review of its prospects and opportunities it expected 6.5 per cent annual average growth in earnings during 2006-10, purely from organic growth.
JPMorgan and Citigroup, two of the few that have projected earnings that far ahead, have forecast negligible growth for the period.
Olena Kyrylenko, equity analyst at KBC Securities in Budapest, said: “There is no major difference from the previous strategy. They just reshaped the figures a little bit. It is more like a marketing step for investors.”
Mol’s shares closed up 1.5 per cent on Monday, giving it a market cap of Ft3,197bn ($17.9bn).