02-03-2020

PKN ORLEN and EU continue talks about acquisition of Grupa LOTOS

PKN ORLEN has been notified by the European Commission of re-starting the clock on the second phase of the merger review process, which will trigger resumption of formal negotiations on PKN ORLEN’s proposed acquisition of Grupa LOTOS.

‘Having supplied all documents requested by the European Commission, we hope that, according to our expectations, their final decision regarding ORLEN’s acquisition of Lotos will be issued by the end of the first half of this year,’ says Daniel Obajtek, President of the PKN ORLEN Management Board.

The European Commission’s decision to ‘stop the clock’ was prompted solely by the need to collect additional information. The practice is a customary one, and has been applied before for a number of proposed mergers, including EON/Innogy and Vodafone/Certain Liberty Global Assets, with conditional approvals issued by the Commission in both cases.

PKN ORLEN’s acquisition of Grupa LOTOS would be in line with a wider trend of building consolidated, multi-energy groups across Europe and worldwide. The deal’s aim is to create a strong player well-placed for international expansion, effectively competing on all markets. It would be a response of the Polish companies to global trends in the refining industry, which would reduce the risk of liquidity loss by the domestic refineries. If the process is followed through, it would also increase the combined entity’s ability to finance large, multi-billion dollar projects, which would drive forward Poland’s economy with added benefits for the environment, including investment in zero and low emission energy sources, such as the planned offshore wind farm development.

The merger would also give fresh economic impetus to the entire region. Benefits for LOTOS would include the ability to win new business and gain a foothold in new market segments, while developing its presence in those where it is already active, such as electric mobility and hydrocarbon exploration and production. The consolidation would involve business process optimisation, without reducing staff levels. No jobs would be made redundant – on the contrary, employees would be able to grow professionally, working for a larger and stronger organisation of international stature. The GdaÅ„sk province would continue to receive income from CIT, PIT and property taxes. The new entity would be a strong regional player, but would continue to support its local communities. Once combined, it would also be better placed to engage in initiatives spanning social outreach, culture and sports across the region. Its coordinated CSR policy would deliver stronger and more thorough support for local communities.

The acquisition of Grupa LOTOS by PKN ORLEN was initiated in February 2018 by signing a Letter of Intent with the Polish State Treasury, holding 53.19% of voting rights at the General Meeting of Grupa LOTOS. In April 2018, a due diligence process was commenced at Grupa LOTOS to examine its commercial, financial, legal and tax positions ahead of the planned acquisition. In November 2018, a draft application for approval of the concentration was submitted by PKN ORLEN to the European Commission. While working on the document, PKN ORLEN and Grupa LOTOS received hundreds of enquiries from the European Commission, to which they promptly replied. Effective cooperation between all the parties involved led to the successful drafting of a final application, which was submitted to the Commission in early July last year. Additionally, an agreement was signed at the end of August 2019 between PKN ORLEN, the Polish State Treasury and the Grupa LOTOS, defining a framework structure for the proposed acquisition of the GdaÅ„sk-based company. In late September 2019, as a matter of customary practice, the Commission issued a standard ‘stop the clock’ decision for the second phase of the merger negotiations.