Austrian oil and gas group OMV upped the ante in its battle to take over Hungary's MOL on Tuesday, telling MOL shareholders it would offer $20 billion if MOL's board agrees to negotiate.
But MOL once again rebuked the approach, saying it would not talk to OMV as the intended bid undervalued its business.
Investors reacted cautiously, driving up MOL stock, but leaving it well below OMV's intended offer price.
OMV, which now owns 20% of MOL, launched its bid to create central Europe's biggest energy group in June. Despite saying it sought MOL's approval, OMV met fierce resistance from management, and on Tuesday it turned to shareholders instead.
"First we approached MOL's board, now we are approaching its shareholders because they asked us to do so," OMV Chief Executive Wolfgang Ruttenstorfer told a news conference.
A recent roadshow had shown that a majority of investors -- most of which hold shares in both companies -- favoured OMV and MOL joining forces, said Ruttenstorfer.
"The shareholders wanted to have a proposal to base their discussion with the board on," said Ruttenstorfer. "We opened the dialogue between MOL's owners and its management. This was the next logical step to take."
OMV said it was ready to offer 32,000 forints for each MOL share, valuing MOL at 3.5 trillion forints ($20 billion), if MOL removed a 10% voting right cap and if the 40% stake in MOL that its board and friendly institutions control was cancelled or neutralised.
"(This) would allow MOL's independent shareholders to decide on the merits of the offer. So far MOL shareholders have been denied this choice through the actions of MOL's board," it said.
MOL launched an aggressive share buyback programme to fend off OMV's bid. It and friendly institutions now control 40% of MOL's stock. It also lobbied Hungary's government to draft a law to restrict foreign ownership in strategic companies.
Under MOL's articles of association, no shareholder can exercise more than 10% of the company's voting rights.
"We believe MOL management are unlikely to yield control in the short term," Merrill Lynch analyst Alastair Syme said in a note to clients. "The process is likely to be long and drawn out with a quick resolution unlikely to be found."
MOL shares initially shot up some 5% but pared gains to trade up 2.3% at 27,600 forints by 1151 GMT. OMV shares dropped as much as 7%, making it the top loser in the DJ Stoxx European oil and gas index.
The proposed price represents a 19% premium to MOL's share price at Monday's close. OMV said it was prepared to offer up to 25% of the price in OMV shares.
The offer would be conditional on securing at least 50% of voting control of MOL and on EU antitrust approval.
The combined business would be listed in Austria and Hungary, and would have strong Hungarian board representation, OMV said.
OMV said it had given preliminary notice to the European Commission that it was seeking to take over MOL. It said it expected to make some disposals to please the antitrust watchdog, but that this did not make the deal less attractive.
Hungary has drafted legislation to stop foreign companies owned or part-owned by the state from acquiring Hungarian energy companies and said on Tuesday it would keep pursuing this law.
The Austrian government holds 31.5% of OMV. Finance Minister Wilhelm Molterer said he welcomed OMV's move. He has said before Austria was ready to let its stake be diluted if OMV had to raise equity to fund a strategic purchase.
Czech electricity producer CEZ, which said in early September it would take a minority stake in MOL, said it would not comment on the news, although it added it had nothing to change in its plan for a tie up with MOL.
OMV Chief Financial Officer David Davies said financing in the double digit billion euro range was in place and did not rule out a capital hike or a bond issue if it would go ahead.