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MOL: Management aims to strengthen further its defense tools

MOL: Management aims to strengthen further its defense tools

8.4.2009 10:09
Autor: KBC/Patria

MOL (1 0770 HUF, -2,09%) revealed its proposals for the Annual General Meeting to be held on April 23

In order to preserve liquidity Board of Directors recommends to the shareholders to pay no dividend in 2009 connected to the year ended at 31 December 2008, while maintains its long term dividend policy to pay out 40% of the normalised earnings (excluding special items) as dividend, depending on investment opportunities.

According to the proposal, the shareholder shall, for the request of the Board of Directors, immediately identify the ultimate beneficial owner with respect to the shares owned by such shareholder. In case the shareholder fails to comply with this request or in case there is a reasonable ground to assume that a shareholder made false representation to the board of directors, it’s voting right shall be suspended and shall be prevented from exercising it until full compliance with said requirements.

The proposal aims moving the decision on the acceptance of a public purchase offer on treasury share(s) to the authority of the board. Here MOL considers that according to the Companies’ Act and the Capital Market Act, the acceptance of a public offer does not belong to the exclusive competence of the general meeting.

According to MOL’s Articles of Association, the increase of the share capital and the issuance of convertible bonds shall require the three quarter majority vote of the general meeting. This would be lowered to a simple majority.

According to MOL, the present changes in the shareholder structure compel the company to operate reasonable mechanisms against a creeping control. Thus management proposes that the potential removal of board members would require the three quarter majority vote of the general meeting. MOL also proposes that only one board member could be removed once, and the remaining member would be protected for the following 3 months. According to MOL’s current Articles of Association, restrictions on the removal of board members are lifted if an owner gets 33% stake in the company through a public bid. Management also aims to remove this.

According to MOL’s current Articles of Association, Board of Directors is entitled to increase the share capital until April, 2010 in one or more installments by not more than 15%, or HUF 16.2bn. MOL proposes to prolong this right until April 2014, and lift the limit to HUF 30.0bn (ca 28.7% of the share capital).

Our view:
MOL obviously has the intention to limit a potential takeover of the company. In our view, some points already breach the interest of minority shareholder as it gives nearly unlimited power to the board, which we consider as very dangerous going forward. Due to a sound political opposition of the Russian ownership in MOL and the fact that MOL management already controls a bit more than 50% of the total votes, the approval of the proposals can be expected. This would provide a very effective defense, if the European Commission does not find it against the European law. In our view, the five most important pillars of MOL’s defense are

1) the 10% voting cap,
2) voting right limitations if the shareholder fails to identify the ultimate beneficial owner (it might be an especially useful tool against Surgut),
3) private placement of new shares,
4) selling treasury shares to friendly hands and
5) cementing the position of board members. In our view the chances of a potential hostile takeover attempt can be reduced to nearly zero if AGM adopts these defense tools, leaving only the friendly way for Surgut ( EUR, 0,00%).

Based on the news, market might start speculating on a harsh reaction from the Kremlin what can give a boost to the share price. In the coming weeks, however, we expect the takeover speculation to erode.

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