Austrian energy group OMV is in talks to take control of Turkish fuel retailer Petrol Ofisi from embattled Dogan Holding as it tries to move into emerging markets, it said on Wednesday.

Talks about Dogan's $1.2 billion stake come after OMV sold its stake in Hungary's MOL (MOLB.BU) for 1.4 billion euros ($2 billion) in March after an ill-fated takeover attempt, raising cash that analysts expect it to use to expand elsewhere.

For Dogan, which now owns 54 percent of Petrol Ofisi, the deal would help raise much-needed cash as the group faces fines from Turkish tax authorities.

Shares in Petrol Ofisi were up 14.3 percent and Dogan was up 11.3 percent at 1217 GMT, while OMV was down 2.2 percent, making it the biggest loser in the DJ Stoxx oil and gas index. .SXEP

OMV, which already owns 42 percent of Petrol Ofisi, said it wants to build up Turkey as its third strategic center -- apart from Austria and Romania -- because of its role as a bridge between Europe and oil- and gas-producing regions.

Turkey is of strategic interest for us -- as a market and as a strategic bridge toward the big oil- and gas-producing regions of the world, Chief Executive Wolfgang Ruttenstorfer said at a news conference to present second-quarter results.

Turkey is becoming a strategic priority as a third hub.

Second-quarter earnings before interest and tax at OMV dropped 83 percent to 151 million euros adjusted for one-off items and inventory holding effects, missing estimates as a sharp drop in margins drove its downstream business into a loss.

CEO Ruttenstorfer said the decline in refinery margins was here to stay because of overcapacity in Europe and due to lower demand for diesel fuel because of the economic crisis.

EMERGING MARKETS

To tap into faster-growing markets, OMV bought Romania's Petrom SNPP.BX in 2004 but has since failed in attempts to buy Austrian utility Verbund and Hungary's MOL.

Analysts questioned the rationale for an investment in more downstream assets given the weak outlook for the next years.

We think investors may be a little unnerved by the speed with which the MOL sale proceeds are being recycled and the lift in gearing this would imply given the still poor outlook for central European downstream businesses, said Barclays Capital analyst Lydia Rainforth in a note to clients.

Apart from the MOL windfall, OMV has bolstered its war chest by reducing investments and cutting debt, and got shareholder approval to sell 2.2 billion euros of new shares.

It also said on Wednesday that it put under review a planned 1.5 billion euro refinery upgrade refineries at Petrom, a project already deferred last year.

EMBATTLED DOGAN

Dogan and OMV said they are under no time pressure in the talks and they could end without any change to the status quo.

Dogan Holding has been in a protracted legal battle over several of its energy-to-media holdings, including Turkey's largest media company Dogan Yayin, which Dogan says was motivated by its political coverage of the government.

This includes the tax fines against his empire, which may explain Dogan's need to strike a deal, analysts said.

(Petrol Ofisi) makes money but the group is currently facing some difficulties with the government and tax authority at moment, said Hasan Sener, analyst at Oyak Securities.

Dogan will increase its cash position with this sale, it already has $800 million cash, but the extra cash will be a relief for them if they have to pay the fines.

Shares in Petrol Ofisi have risen some 143 percent this year, outperforming Istanbul's blue chip index , much on the back of rumours that OMV would buy up its embattled partner, which OMV had earlier denied.

($1=.6949 Euro)

(Writing by Boris Groendahl; editing by Hans Peters and Rupert Winchester)

Energy