RPT-Czech CEZ seals MOL alliance, raises outlook

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By Jan Korselt

Czech power firm CEZ agreed on Thursday to buy a 7 percent stake in Hungarian oil and gas firm MOL , sealing an alliance that may help MOL to ward off a takeover bid from Austria's OMV .

CEZ, the largest listed company in central Europe with a market capitalisation of $44.9 billion, also raised its profit and dividend outlook and confirmed plans to take over a lignite mine, key to renewal of its power plant portfolio.

In a deal backed by the two central European countries' governments, CEZ will buy the stake directly from the company at 30,000 forints per share, and MOL would have a three-year option to buy it back at 20,000 forints.

The majority state-owned Czech firm said that after subtracting an option premium it will receive, it would pay around 560 million euros ($804.6 million) for the stake.

"Cooperation with MOL is an opportunity for CEZ to strengthen its position on electricity markets in central and southeastern Europe with the contribution of a strong, established partner," CEZ Chief Executive Martin Roman said.

CEZ shares closed 1.3 percent up at 1,384 crowns ($250.5) before the news on the MOL stake. The Hungarian company's stock closed 0.5 percent down at 23,600 forints ($133.5).

The two firms formed a joint venture that will build gas-fired power plants, starting with two 800-megawatt stations at MOL's refineries in Hungary and Slovakia that will cost 1.4 billion euros. The 50-50 joint venture will also focus on Slovenia and Croatia.

INVESTMENT LOGIC

Analysts said the deal may help MOL in its defence against OMV, which has accumulated a 20 percent stake in MOL and has said it was ready to bid $20 billion for the group.

MOL and related parties control about 40 percent of the group's stock, including the 7 percent sold to CEZ.

Some analysts had had doubts about the logic of CEZ's investment in MOL, which the two outlined in August. But after seeing the details they said there was value for CEZ in entering Slovakia and Hungary and boosting the proportion of lower-carbon gas plants in its portfolio.

"Tying up capital in noncore assets is rarely an 'investor favourite,'" said ING Wholesale Banking analyst Harold Hutchinson. "However, the specific terms of this deal attract us from CEZ's perspective."

OMV, which is willing to pay 32,000 forints per share for MOL if the Hungarian company dismantles its anti-takeover defences, said the move destroyed shareholder value as the Czech company was paying far than it was offering.

"MOL management continues to use shareholders funds to control MOL and denies shareholders from determining the future of the company," OMV said in a statement.

"CEZ agreed equity participation in MOL constitutes pure financial engineering as the industrial cooperation between MOL and CEZ which was communicated today does not require an equity participation," it added.

CEZ raised its 2007 net profit forecast to 42.6 billion crowns ($2.3 billion) before minorities from a previous estimate of 41.4 billion. It raised its dividend payout ratio to 50 to 60 percent of net profit from a previous 40 to 50 percent. The ratio is related to profit before one-offs, forecast by the company at 37.3 billion crowns in 2007.

The company said it expected 2008 net profit to rise to 46.6 billion crowns and confirmed it has been in talks to take over Czech lignite miner Mostecka Uhelna, but the negotiations have so far yielded no result.

CEZ said it would potentially acquire the firm, valued by Czech media at 28 billion crowns, together with investment group J&T, because CEZ was only interested in one of the firm's mines. (Writing by Jan Lopatka; Additional reporting by David Chance; Editing by Brian Moss and Alan Crosby) For main central European company news, double click on [.CEE] E.Europe hot stocks [HOT-EU] Main E.Europe news [TOP/EAST] Related stories on [HU] [PL] [CZ] [EEU-STX] [EEU-RES] [EEU-E] For real-time index quotes, double click in brackets: Warsaw WIG20 Budapest BUX Prague PX ($1=18.29 Czech Crown) ($1=176.82 Forint) ($1=5.525 Crown)

Keywords: CEZ/OUTLOOK

[PRAGUE/Reuters/Finance.cz]