Orban-Allied Tycoon Mulls Merger to Supersize Conglomerates

(Bloomberg) -- Two Hungarian conglomerates controlled by an ally of Prime Minister Viktor Orban that were among the world’s best-performing stocks last year are looking into a possible merger to attract institutional investors.

Opus Global Nyrt. and Konzum Nyrt. are vying to become the biggest investment holding company in central and eastern Europe and gain interest from beyond Hungary, Konzum Chief Executive Officer Gellert Jaszai said at a conference in Budapest on Thursday. After consolidation of recently acquired units, Konzum and Opus would have a combined market value of 1.5 billion euros ($1.8 billion), Jaszai said.

Such a merger “requires a very thorough review,” said Jaszai, who’s also on the board of directors at Opus. He added that combining the companies could also carry downsides, such as making the two highly diversified conglomerates difficult to track for investors and analysts.

Extraordinary stock gains -- Konzum soared more than 6,600 percent while Opus gained almost 1,700 percent last year -- have drawn opposition criticism that the companies owe their success to the connection between Orban and their biggest shareholder, Lorinc Meszaros. Hungary has plunged in corruption rankings in recent years as the populist leader tightened his grip over the economy. Meszaros, a boyhood friend of the prime minister, until this year was mayor of Orban’s hometown and a member of his ruling party.

The companies have benefited from EU funds distributed by Orban’s cabinet, which was ranked among the worst in the world by the World Economic Forum’s annual index when it comes to favoritism by officials.

Opaque Structures

Most brokerages have shied away from covering the companies, citing a lack of transparency, including their dizzying pace of acquisitions and opaque financing structures. Management is continuing to work on improving transparency for investors and is in the process of consolidating recently purchased units, Jaszai said.

One result of that effort has been the confirmation that Meszaros and his family control both conglomerates via various investment vehicles. The tycoon’s wealth exceeded the $1 billion mark last year, making him the second-richest in Hungary behind OTP Bank Nyrt. Chairman and CEO Sandor Csanyi, according to the local news website napi.hu.

Wealth Accumulation

Meszaros’s rapid wealth accumulation since 2014, when he was worth an estimated $29 million, coincided with Orban’s public feud with another oligarch that year. Orban has rejected allegations that Meszaros was a front for his personal wealth.

A combined Opus and Konzum would be the fourth-biggest listed company in Hungary, after OTP, refiner Mol Nyrt. and pharmaceutical company Gedeon Richter Nyrt., eclipsing Deutsche Telekom’s Magyar Telekom Nyrt. unit. Opus fell 0.4 percent to 724 forint per share by 3:43 p.m. in Budapest while Konzum edged 0.3 percent lower to 3,275 forint.

Opus and Konzum are like a local version of Exchange Traded Funds, index-based products that allow investors to buy into a range of industries via a single security, Konzum Deputy CEO Peter Fekete said at the conference.

Konzum has major holdings in tourism, financial services, real estate and fund management while Opus focuses on construction, media, energy and agriculture. Opus also has an ownership stake in Konzum.

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