UPDATE 2-CEZ forges alliance with MOL, may take stake

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By Krisztina Than and Jan Lopatka

BUDAPEST/Czech power utility CEZ and Hungary's oil and gas group MOL agreed on Thursday to form a strategic alliance under which CEZ may buy up to 10 percent in the Hungarian firm.

Analysts said the tie-up would help MOL, with market capitalisation of $16 billion, fight what it calls a hostile approach by Austria's OMV which has accumulated an 18.6 percent stake.

Under a memorandum of understanding signed on Thursday, CEZ and MOL will jointly build gas-fired heat and power plants.

"Within the scope of this cooperation CEZ will also purchase from MOL an equity stake in MOL of up to 10 percent in the near future, and the parties will enter into related financial transactions," MOL said. "Any cross-shareholding in respect of the parties is not considered for the time being."

CEZ said in a separate statement it was "considering" buying up to 10 percent of MOL.

CEZ, central Europe's largest electricity company with market capitalisation of $31 billion, has been pursuing expansion across central and eastern Europe.

"Cooperation with MOL is an opportunity for CEZ to strengthen its position on the electricity markets in central and eastern Europe, with the contribution of a strong, established partner with experience in the gas business," CEZ Chairman Martin Roman said in a statement.

The cooperation is expected to start with building power plants in MOL's refineries in Slovakia and Hungary.

CEZ, majority state-owned, has been conducting an up to 10 percent buy-back while the government has agreed to sell a roughly 7 percent stake on the capital market.

A Czech government source said CEZ may take a 5 or 8 percent stake, and that the talks were held with the consent of key Czech government figures.

MOL VS OMV

MOL viewed OMV's interest as hostile and started buying back its shares and parking them with friendly institutions. Company analysts estimate that it owns around 40 percent of its stock, either directly or indirectly.

OMV has said it wanted friendly talks on a merger and denied that it would make a hostile bid.

Hungary and MOL have both raised competition concerns, saying the two companies combined would own large refineries on the Danube in Austria, Hungary and Slovakia.

Analyst Dan Karpisek of Unicredit Global Research said he saw value for CEZ in a tie-up with MOL for business.

"CEZ and MOL are the two best managed firms in the region... MOL knows the gas market, CEZ knows the electricity market, so they will join their experience," he said.

But he saw no benefit in CEZ taking an equity stake in MOL.

"MOL is buying up shares and probably needs to hide them somewhere so it can buy more," he said. "So CEZ seems to be a good candidate that could do this but I do not see any contribution for CEZ shareholders."

He said that MOL shares have been pushed up by the buy-back, and that investors liked CEZ for being a stable, non-cyclical utility unlike an oil refiner.

"I think OMV must be feeling unpleasant as they are sitting on a 19 percent stake which appears to be an investment... over which they don't have control," added Peter Tordai, equity analyst at KBC Securities.

The news came after the market close in both Prague and Budapest. CEZ ended 2.2 percent up at 1,077 crowns, while MOL was flat at 27,245 forints.

(Additional reporting by Jan Korselt in Prague)

[PRAGUE/Reuters/Finance.cz]