Late last Friday, as it looked increasingly likely that Hungarian oil and gas giant MOL Rt would not bid for Czech oil company Unipetrol SA, commentators were divided as to what this might signal for MOL’s planned merger with Polish peer PKN Orlen SA.

According to analysts in Warsaw, Prague and Budapest, a number of factors influence the potential $5 billion MOL-PKN merger – which would create an oil, petrochemicals and gas group stretching from the Baltic to the Adriatic – and the estimated $500 million Unipetrol privatization. These include domestic politics in Warsaw, the imminent EU accession of all three countries involved (and consequent entry of new supervisory processes), and the regional ambitions of the various national oil champions.

By contrast, Kornél Sarkadi Szabó at Raiffeisen Securities Rt in Budapest said a joint bid would signal a greater desire to go ahead with the planned merger, while no interest from MOL in the tender at all might suggest that the deal has less chance of going ahead. Sarkadi Szabó added that the failure to sell Unipetrol in 2001 means that the Czech government is determined to conclude a deal, and opined that if the price is close to fair value, the privatization will go ahead.

Dan Karpisek, equity analyst at Investicní Bankovnictví KB in Prague, said the most likely outcome would be a single bid from PKN. If so, he forecast that, provided the price offered was fair, PKN would be in pole position to win the 63% of Unipetrol on offer. Karpisek added that the regulations of the privatization require a bidder to submit a bid for the whole company, not for individual business lines. He explained that the risk factor for any bidder is the complexity surrounding Unipetrol’s refineries.

Since 1995, a 49% stake in Ceská Rafinérská AS (CeR) – a holding managing major Unipetrol refineries that are the most valuable assets of the Czech concern – is owned by the International Oil Consortium (IOC), composed of ConocoPhillips, Agip and Shell. Despite its minority position, the consortium has operational control over the refineries and the right of first refusal on the purchase of the remaining 51% of CeR’s shares owned by Unipetrol.

Erste’s Mierzwa said PKN, in cooperation with Czech chemicals company Agrofert AS, is the most likely winner of the tender, not least as PKN could sell the petrochemical concerns of Unipetrol to Agrofert after completion of the deal. Mierzwa noted that PKN is also in cooperation with U.S. fuels giant ConocoPhillips, which, as one of the companies in the consortium with an option on the Ceská refineries, means that the risk factor of the option being exercised is reduced. He added that MOL is not interested in Unipetrol at all, mainly as other acquisitions in the region drained the company’s cash reserves. He speculated that MOL tabled a preliminary interest merely in order to obtain information on Unipetrol, much in the same way that PKN did during the privatization of Croatian oil concern INA dd. On the subject of the MOL-PKN merger, Mierzwa said the two companies already agreed to merge in some form or other, the most likely form being a share swap. The fractious state of Polish politics is the only real barrier to starting what could be a two or three-stage process that would come under the supervision of various national and EU monopolies and securities commissions, he said. He added that he would like to see what feelings other shareholders have towards the proposed merger.

Raiffeisen’s Sarkadi Szabó observed that if PKN bids alone and wins, this would not have any detrimental effect on MOL’s share price, but would likely strengthen PKN’s hand in upcoming merger talks. However, he said he believes MOL would still have the upper hand.

MOL has scheduled an EGM for Friday, April 30, where it will make a formal announcement on the proposed PKN merger.

(BBJ 26.iv.04)