MOL: The TVK Acquisition

Published 06 Jan 2004
Reference 5219
Topic Strategy
Region Europe
Summary

In the early 2000’s, MOL, the newly privatized Hungarian Oil and Gas Concern considers acquiring a controlling stake in TVK, a downstream customer specialized in the production of polymers. The case highlights the tension between long-term competitive/growth strategy and short-term operational issues and cash considerations, in the context of this particular decision. It also provides the opportunity to explore the broader strategic challenges that this company faces, if it wants to stay alive in the consolidating Central European Oil market. This market is particularly interesting and unique after the fall of the Berlin Wall. It faces deregulation, privatization and major consolidation, as the region’s economies move into market economies. MOL, in particular, is a very interesting company, which, despite being a small player could successfully challenge Royal Dutch SHELL, Austria’s OMV and large Russian oil companies with its bold acquisitions, thus creating one of the first and largest multinational companies of the region.

Teaching objectives

The pedagogical objectives are twofold. On the one hand, the case illustrates the tension between long-term competitive strategy, and operational efficiency. In the short run, MOL seems to overpay for this small downstream player that is hard to integrate in its overall regional strategy from an operational perspective. On the other hand, if MOL does not have control over TVK, then it leaves the door open for large foreign players who want to enter the region. As MOL’s strategy is to expand to a critical mass, it needs to defend its territory. As such the case illustrates a typical situation, with tension between long-term competitive strategy and short-term operational efficiency. Second, the case provides a unique opportunity to reflect on the changes that happened in the Central/Eastern European markets after the fall of the Berlin Wall. In the late 90’s, Eastern Europe’s oil industry is in sharp contrast with the heavily consolidated oil business of the world. The market is fragmented, and firms that want to stay market leaders need to devise a strategy on how to face consolidation. MOL is a beautiful success story on how to succeed in such an industrial environment. In ten years, this small Hungarian company has become the largest multinational of the region, successfully competing against large global companies such as Shell and Austria’s OMV.

Keywords
  • Corporate strategy
  • Vertical
  • downstream integration
  • Competition
  • Mergers and acquisitions
  • Eastern Europe
  • Hungary
  • Oil industry
  • Growth strategy. AR0304
  • AR2004