Further steps taken by PKN ORLEN to acquire PGNiG Group
23-07-2020   
​PKN ORLEN has begun work on a merger control submission to the European Commission regarding its intended acquisition of the PGNiG Group, Poland’s incumbent gas supplier. Concurrently, a due diligence process will be carried out at the target, pursuant to a confidentiality agreement signed between both parties. The acquisition would mark an important stepping stone in PKN ORLEN’s efforts to build a single multi-utility group with a strong position in Europe and global coverage.

“At a rapid pace, we are now setting to work to take over the PGNiG Group. We have extensive experience with such deals, combined with unique skills in running major investment projects and adequate financial capabilities. Therefore, PKN ORLEN’s leading role in the process ensures that the deal is executed smoothly, for the benefit of both companies involved, their respective shareholders and customers. Following our integration with the PGNiG Group, we will become a full-fledged player in the European energy top league, alongside regional powerhouses, which have long been reaping business benefits from their own consolidation processes, such as Italian Eni and Spanish Repsol,” says Daniel Obajtek, President of the PKN ORLEN Management Board.
 
The confidentiality agreement between PKN ORLEN and the PGNiG Group represents another step, after the Letter of Intent signed with the State Treasury on July 14th 2020, in the Polish refiner’s progress towards taking over the gas group. In a short time, a submission will be prepared requesting the European Commission’s clearance of the intended market concentration. Under the Letter of Intent, the transaction model and schedule will be determined by a team representing all its parties. PKN ORLEN’s role as the transaction leader will be central to that process.
 
Following the integration of PKN ORLEN, ENERGA Group, LOTOS and PGNiG assets, the total annual revenue of the new group would reach some PLN 200bn, while EBITDA of its key segments would come close to PLN 20bn a year. The resulting economies of scale would help the combined entity compete effectively across global markets. The large group would also enjoy access to cheap sources of funding, currently not available to any of the companies on a separate basis.
 
Once the assets of the four groups are amalgamated, it would be possible to uniformly distribute their business and diversify EBITDA sources, building the group’s resilience to market volatility. The combined entity’s operating profit would continue to be driven in approximately 40% by the core business activity, namely the refinery and petrochemical operations, while the upstream segment, with a total annual output of approximately 70 million boe of oil and gas, would account for about 20% of the group’s EBIT figure. Retail sales of fuels, gas and energy as well as the regulated distribution business would each generate some 15% of the total figure, with a strong growth potential in the following years. Lastly, the energy generation segment would contribute about 10% to operating profit, but that figure could be boosted significantly by 2030 through the delivery of new capital projects.
 
PKN ORLEN’s transactions, including its planned acquisition of the PGNiG Group, are in keeping with prevailing global trends. The world’s largest fuel companies have long built integrated value chains based on oil and gas production, state-of-the-art power generation, and expansion of their retail muscle. For example, BP, Total, Shell and Equinor have implemented segment-based management models, with the highest priority given to diversified revenue sources. Having successfully closed the acquisition processes, PKN ORLEN will also leverage and reinforce its existing segment-based management system.
 
The ORLEN Group’s plan is to become a business leader of the energy sector’s sustainable transformation in the CEE region. In the upstream segment, the consolidation would enhance the combined entity’s operational efficiency and capacity to deliver capital investment projects, enabling it to focus on the most prospective natural gas and crude oil assets held by both companies in Poland and Europe. In the case of power generation, an integrated portfolio would be created in Poland based on high-efficiency CCGT units and renewable energy sources, including offshore wind power generation. In this context, the balancing potential of CCGT units to offset the irregular generation profile of renewable energy sources would play a vital role. At the same time, a wide-ranging portfolio of assets under the group’s management would optimise wholesale trading in electricity.
 
Customers would be the ultimate beneficiaries of the creation of a multi-utility group. Leveraging its combined capabilities, the group would be able to offer a broader portfolio of attractive fuel, gas and energy products and services, and would gain considerable potential to further develop the ORLEN brand and the VITAY loyalty scheme offering a number of comprehensive services.
 
The creation of an integrated group would enable PKN ORLEN to fully tap the potential of its employees and to raise their competencies. In the current market reality, there is a noticeable shortage of workforce, especially in the manufacturing sector. After all the consolidations, the group’s total headcount would exceed 60 thousand.

The ORLEN Group has an extensive track record in acquisitions, not only in Poland but also on a global scale. Over the years, companies such as ANWIL of Włocławek, Unipetrol of the Czech Republic, ORLEN Lietuva of Lithuania, and most recently Energa have joined the ORLEN Group. Each of these acquisitions has spurred the company’s growth by building specific competences, reinforcing its position in the region, and leveraging the workforce potential.
 
The new group would also have considerable experience in the delivery of major capital investment projects. Over the last three years only, the ORLEN Group has completed three projects with costs in excess of PLN 1bn. These capital investments included a polyethylene unit at the Czech Republic’s Unipetrol and two CCGT units in Płock and Włocławek, Poland. The Group also holds a licence for the construction of an offshore wind farm in the Baltic Sea, with a capacity of approximately 1,200 MW. The standard cost of such projects is typically around a dozen billion PLN.
 
The ORLEN brand enjoys strong recognition throughout the region, driven by solid relations forged by the Group with its customers, employees and partnering institutions. PKN ORLEN is also seeking to enhance its global brand recognition through a co-branding process currently under way within the European network and through sports sponsorship. This is a well-thought-out strategy aimed at building lasting relations with the Group’s customers and business partners.
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