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When Gyorgy Mosonyi, chief executive of Budapest-based oil and gas group MOL, chats with other top Hungarian managers these days, the hot topic is no longer restructuring or downsizing. It's international mergers and acquisitions. "The only way to create shareholder value is to grow. But growth in Hungary is limited," he says.
Dealmaking elsewhere has come to nearly a complete halt, but thanks to a pack of Hungarian companies, the M&A scene in Eastern Europe is heating up. MOL, chemicals company BorsodChem, drugmaker Richter Gedeon, OTP Bank, and Danubius Hotels, all of which were privatized in the mid-1990s, have spent the last half-decade putting their own houses in order. Now they're snapping up potential rivals from Poland to the Balkans and exporting their management savvy in the process. "They may have better insight than some Western multinationals on how to operate in a post-socialist, post-privatization environment," says Istvan Zsoldos, a senior analyst at Concorde Securities, a Budapest brokerage.
In fact, these pioneers managed to make the transition from state-owned clunker to well-run private business without the guidance of foreign investors. Instead of auctioning off its best companies to strategic investors, the Hungarian government took them public on the Budapest Stock Exchange. That was a controversial move at the time. But critics underestimated local managers' abilities. Many, like Mosonyi and Erik Bogsch, CEO of drugmaker Richter Gedeon, not only had exposure to Western business practices but had lived in the West, too. Mosonyi, 52, worked for Royal Dutch/Shell Group (RD
) for 25 years before taking the helm at MOL. "Hungarian managers were much more Westernized than people gave them credit for," says Larissa Malycheva, director of Fitch Ratings Ltd. in London.
Half a decade later, those Hungarian executives have proven themselves. They've trimmed payrolls, shut down inefficient plants, ramped up capital spending, and boosted the quality of their products. But now their companies are starting to feel hemmed in by Hungary's small domestic market of just 10 million people. "They are all on the same life cycle. They got sold early, they spruced up, produced profits, and now they've exhausted their potential for growth at home," says Zsoldos.MOMENTUM. Take MOL. Since its privatization in 1995, the company has sold off noncore assets, invested $700 million in plant and filling station upgrades, and outsourced aggressively. Its payroll is down from 20,000 in 1995 to 15,500. Although a big writedown in the gas division held down aftertax profits to $67.7 million last year, operating income in the company's other businesses more than tripled to $560 million.
For MOL and others, the next step was obvious. According to PricewaterhouseCoopers, Hungarian companies plowed $600 million into acquisitions in neighboring countries in 2000. The momentum has carried into this year with Richter Gedeon bidding $48.7 million for Polish drugmaker GZF Polfa, while OTP Bank is buying a $34.5 million stake in a Slovak bank, Investicna a Rozvojova Banka. "Our capital is increasing, but we just can't invest it all in Hungary," says OTP Bank CEO Sandor Csanyi. On Nov. 27, MOL announced that it had teamed up with Hungarian and Austrian partners to bid for a 63% stake in the Czech Republic's largest petroleum refiner and retailer.
Such crossborder wheeling and dealing is not without risk. Some Hungarian companies, in their urge to expand abroad, may be overpaying for acquisitions. MOL has been criticized for offering too much--an estimated $500 million plus--for a 17.6% stake in Poland's PKN Orlen, Eastern Europe's largest petroleum refiner and retailer. The stake's market value is only $280 million. Yet Mosonyi argues that the possible synergies justify his offer price. "None of the other countries in the region made the transformation we have made," says Mosonyi. "We have learned from this, and we can apply the lessons in other countries." MOL and company may be on their way to becoming Eastern Europe's first multinationals. By Christopher Condon in Budapest