OMV has said that it may buy Austria’s national utility Verbund (51% owned by the Austria state) paying a ‘minor’ premium. Note that Verbund currently trades at 2006F EV/EBITDA of 9.0x and 2007F EV/EBITDA of 7.8x, which a 12% and 7% premium to CEZ respectively. While we also note that Verbund’s electricity generation is 90% hydro-power plants, which have lower operating costs compared to coal power plants. The logic behind the bid is partially based on increasing concerns over national and EU-wide concerns about the security of electricity supplies, in particular the EU’s increasing dependence on oil&gas supplies from third countries. Nevertheless, the bid should support our buy recommendation for CEZ based on the valuation as well as CEZ’s oil&gas independent production capacity mix consisting of nuclear, coal and renewable (CEZ owns the coal mines).