OMV and Verbund to Merge

OMV, Central Europe's leading oil and gas group and Verbund, Austria's leading electricity provider, with wide-ranging activities across Europe, have signed an agreement to form a new energy group, with its head office in Vienna. The aim of the two companies is to merge as equal partners, in proportion to their market capitalization (60/40). This will create a leading integrated energy group with growth potential in Central Europe. In addition to the traditional synergy effects, the new group will combine the production, transport and trading of several forms of energy (oil, gas and electricity), will supplement finite resources with renewable hydroelectric power, allow electricity generation from gas and ensure greater sustainability and security of supply. The realization of this new energy solution can be expected towards the end of 2006 – subject principally to the agreement of the Austrian parliament, OMV's shareholders' meeting and the relevant competition authorities.

OMV CEO Wolfgang Ruttenstorfer: "This agreement is a great success. A merger of OMV and Verbund, two strong companies headquartered in Vienna and with complementary business areas, is extremely forward looking. The profitable operations of both companies will be put on a strong common foundation to form an integrated energy group with greater competitive strength, sustainability and security of supply."

Hans Haider, Chairman of Verbund's Managing Board, also sees significant benefits in the joint plans: "The new energy solution, integrating electricity, oil and gas, brings the greatest possible security of supply for customers. This will make a decisive contribution to strengthening Austria as a business location over the long term, especially as energy is one of the critical development factors of the future."

Existing growth strategies will continue to be pursued. OMV Verbund AG will bring together the financial strength of both companies, providing all business areas with greater capacity to invest. Ruttenstorfer and Haider agree that, particularly in times when security and environmental-friendliness are gaining in importance, a new energy group linking environmentally friendly gas and electricity generated mainly from hydroelectric plants is strategically the best solution to the energy issues of the future.

Leading energy group

The strengths of the two groups are extremely complementary: OMV is the leading oil and gas group in Central Europe; its refineries, filling stations and commercial business serve around 100 million people and benefit from oil and gas production nearly all round the world. OMV also has a strong position in another business with significant future potential: gas transit and storage, and also in gas sales through its 50% subsidiary EconGas as well as its Romanian activities.

Verbund is the largest generator and transporter of electricity in Austria. It runs the Austrian interregional high-voltage network, with important links to other countries. It is the most environmentally friendly large electricity generator in the EU: over 80% of its output comes from the group's hydroelectric stations. At a European level, Verbund is highly successful in electricity trading, which accounts for around 60% of its sales.

Joining the two companies together will create a leading integrated energy group in Central Europe with significant growth potential: Verbund and OMV already have strong positions in growth markets and their business operations are complementary. OMV's strong position in Central Europe will provide the new company with opportunities for expansion in the electricity business in those countries where Verbund has so far not been present. The construction of joint gas power stations in Central Europe is under consideration, which would help to meet the rising demand for electricity in this growth region. In this case OMV's own gas and the additional gas that should be flowing through the Nabucco pipeline from 2011 will provide a secure supply for electricity generation.

Stronger position in the international energy market

The integration of the oil, gas and electricity divisions is a major advantage of the new energy group. The new company will join the ranks of the major European energy groups in the field of combined oil, gas and electricity trading, thereby securing its long-term competitive position. The generation of electricity from hydroelectric sources creates more independence from price trends on the international commodity markets. In total the new group will have a better negotiating position in the international energy markets and create a substantial counterweight to the global multinationals. The two companies' business activities are completely complementary; for consumers, the lack of overlaps means that competition will in no way be reduced. For customers in Central Europe this brings security and energy solutions from a single provider. The new company is clearly committed to fair competition and to leveraging its combined expertise in business with large corporations.

Forward looking move and enhanced security of supply

In the years ahead, energy consumption, particularly of gas and electricity, is set to rise sharply. The new energy group will follow the trend in power generation of using environmentally friendly natural gas. Gas power plants operate with lower fixed costs than other types of power generation, such as coal, are more environmentally friendly and represent an ideal adjunct to the strong generation of power from environmentally friendly hydroelectric sources. By combining gas production and gas supply contracts with power generation, the group will increase the bias of its portfolio towards ecology and sustainability and as a profitable company will contribute in a major way to the security of Central Europe's energy supply.

Joint management structure

OMV and Verbund also intend to share executive responsibilities, as reflected in the shared composition of OMV Verbund AG's new Management Board. The aim is a management structure that combines the expertise of the existing teams in the individual business areas. The Management Board of the new company will consist of the seven previous Management Board members of OMV and Verbund, who will essentially continue to be responsible for their present businesses. Leading the company will be two co-CEOs: the current CEOs of OMV and Verbund. In the words of Ruttenstorfer and Haider, "We are confident that this is the best structure to ensure the smooth running of the future business of OMV Verbund AG."

Public offer

The following steps are needed to create the new energy group: The Republic of Austria will contribute its 51% interest in Verbund via ÖIAG to OMV AG in return for a mix of newly issued OMV Verbund AG shares on a 1-for-6.4893 ratio and against issuance of a convertible bond. This will be done via a capital increase against an in-kind contribution excluding the subscription rights of existing shareholders. Pursuant to the provisions of the Austrian Takeover Act, the minority shareholders of Verbund AG will benefit from a pre-emptive mandatory offer with a cash and a share-for-share alternative. The shareholders of Verbund wishing to accept the exchange offer can choose to exchange one share of Verbund for 6.5 newly issued OMV Verbund AG shares and those shareholders of Verbund wishing to accept the cash offer can choose to sell one share of Verbund for EUR 425 per share (EUR 42.5 after 1:10 share split). The price of the cash offer therefore reflects a premium of more than 20% over the average volume weighted share price of Verbund within the six-month period prior to this press release in which the intention to launch a public offer is expressed. Once the OMV Verbund AG transaction has been completed the new energy group will hold the controlling majority in Verbund AG.

The new shareholder structure of the combined OMV Verbund AG will continue to offer the advantage of a stable core shareholders group via the unchanged syndication of ÖIAG with IPIC, which will in future jointly hold about 45% in OMV Verbund AG.

In the course of 2007, it is envisaged that Verbund will be fully merged into OMV Verbund AG in a second step.

Prerequisites for the execution of the energy deal

The main prerequisite for the merger is the waiving of the constitutional objection raised by the Austrian parliament, so that the Republic of Austria's 51% interest in Verbund can be transferred to OMV. Other prerequisites are: a resolution approved by an extraordinary general meeting of shareholders of OMV, the approval of the relevant competition authorities and other legal measures. Provided approval is granted by the aforementioned institutions and the other conditions are fulfilled, the deal is expected to close towards the end of 2006.