The main Hungarian and Polish energy companies have taken the first step toward what would be Central and Eastern Europe's largest merger. Prime ministers of the two countries were present for the signing of an agreement to start the process.
The Hungarian Oil and Gas Company, MOL (Magyar Olay es Gazipari), says it has signed a memorandum of understanding with Poland's oil and gas giant PKN (Polski Koncern Naftowy Orlen).
In a statement, MOL says the two companies believe the move toward a merger will enable them to compete more effectively with major global energy companies.
Budapest-based analyst Tamas Kiss of the Platts company, the world's largest information provider on energy, says the firms have been concerned about a possible hostile takeover by a foreign company.
"This is the biggest merger in Central and Eastern Europe," he said. " And to have competition against the big players like Shell and other multi-nationals in the region here, MOL has definitely got to have this merger. And MOL in itself is worth about $3 billion. PKN in itself is quite a big company. The company is worth about $5 billion. So, together, being almost $8 billion, it would be a significant, big company."
Hungarian Prime Minister Peter Medgyessy and his Polish counterpart Leszek Miller, who both attended the signing ceremony in Warsaw, say they, too, want a strong regional energy company.
The Polish government has a 28 percent stake in PKN, while Hungary holds 23 percent in MOL through its privatization agency.
But analyst Tamas Kiss says the governments of Hungary and Poland will soon lose what is called their golden shares in the companies - the power to veto decisions - when the countries join the European Union in May of next year.
"Once becoming an EU member, the capital markets law will not allow Hungary or Poland to hold a golden stake, or golden share, simply because there is the capital free market," said Tamas Kiss. "And the government cannot intervene, unless helping in certain ways for strategic issues, but not by vetoing any decisions made by a fully independent company."
After the merger is concluded in 2006, the two companies are expected to try to acquire other energy firms in the region. MOL has already acquired 70 percent of Slovakia's refinery, Slofnaft and 25 percent in Croatia's petroleum group, INA. Analysts say the new Polish-Hungarian merger is also looking at possible acquisitions in the Czech Republic, Romania and Serbia.