MOL Becomes INA's Majority Owner

By: Maja Florsic


The leading Croatian oil and gas company, Industrija Nafte (INA), has strengthened cooperation with its Hungarian strategic partner MOL. On September 1st of this year, Croatian Financial Services Supervision Agency (HANFA), approved MOL’s public offer for INA’s shares.
In 2003 MOL acquired 25% of INA’s shares while the Croatian government owned 44%. The remaining shares were distributed between Croatian war veterans who owned 14% and 17% were listed on the Zagreb/London stock exchange.


This September, MOL made a public offer of 2,800 kuna ($576.6) per share of the 31% not owned by the Croatian government, valuing INA as a whole at $5.76 billion. The bid was running until October 3rd and MOL, at the time, announced it would continue talks with the Croatian government after this date regarding a possible share swap. Ivo Sanader, the Croatian Prime Minister, confirmed on September 4th talks of a share swap were a likely option as the government is looking to avoid possible inflation likely to occur if the government shares were privatized. The government also stated that they believe a share swap would secure them more influence on MOL’s future policies leading to a strengthening of Croatia’s energy independence.
Hungarian daily newspaper, Nepszabadsag, reported today that MOL has obtained a 22.15 % stake in INA and now owns 47.15%. MOL paid close to $1 billion for the 2 million INA shares it bought, the paper says. MOL’s success in this takeover gives Hungary majority ownership of the Croatian leading energy company.


MOL and the Croatian government are currently undergoing talks concerning the possibility of MOL acquiring 19% of shares from the government, the same newspaper also reported.
Considering the current negative mood on market, many, including Croatia’s small shareholders, found this bid of 2,800 kuna per share to be unacceptably low. However, it seems the global financial crisis convinced many investors to accept MOL’s offer after all.
In a recent unofficial conversation with a MOL employee, he told me he strongly disagrees with these claims. In his opinion, something is worth only as much as is being offered for it. “No one is forcing INA to sell its shares and MOL doesn’t decide on the value of the shares.” His opinion and the likely opinion of MOL collectively is that if no one else offered more, the value offered is exactly what its worth.


Zsolt Hernádi, Chairman (CEO) of the MOL Group commented: “I believe that with the public offer we have shown our commitment in a transparent way towards both INA and Croatia. With the high acceptance of the public offer we have made another important step toward the realization of our strategic goal: strengthening the partnership with INA”.
Croatia is currently involved in negotiations with the European Union and is expected to join by 2010/2011. Under EU regulations, it is required of the Croatian government to reduce its stake in INA to 25%, making this requirement one of the possible reasons for INA’s privatization in the first place.


“Croatia feels pressured to prove to the EU that it can transparently conclude this deal and respect the EU regulations at the same time” added the MOL official in our conversation.
When asked about the possible benefits for Croatia from the sale of these shares, the MOL official, who is in fact Croatian, stated that the Croatian government has developed a special privatization strategy according to newly updated privatization laws. He added that this is important for Croatia as this new procedure is completely transparent and will therefore aid Croatia with EU negotiations.


He also added that both MOL and INA are vertically integrated companies, which means that several different steps in the production of a good are controlled by a single company.
The vertical integration of two companies, especially when raw materials are in question like in this case, is a positive thing as the two companies will jointly explore these raw materials thus keeping costs to a minimum.


As the percentage of ownership in a company is bigger, the company is more powerful. He feels, together, these two companies will become a leading oil and gas company in this part of Europe. Only such powerful oil companies have enough capital to finance large projects that include drilling, and so on, without the involvement of banks.
At the end of 2007 MOL had 340.6 million boe P1+P2 hydrocarbon reserves and 90.4 thousand boe/day hydrocarbon production (source of fuel).













INA, on the other hand, at the end of 2007, had 375.1 million boe P1+P2 hydrocarbon reserves and 65.3 thousand boe/day hydrocarbon production during 2007.
“MOL manages much more fuel and gas than INA”, responds MOL official to my question about the future of Croatian petrol supply in regards to this deal. As Croatia only receives its gas from Russia, a partnership with MOL will open up more possibilities of fuel supply to Croatia and will lower Croatian dependence on Russia.


The global banking crisis didn’t seem to affect this deal negatively at all, more so, it just seemed to help MOL. As the MOL employee said “...especially with the small share holders, as they realized they should accept MOL’s offer”.