UNIPETROL has completed the sale of Kaučuk

Prague, 30th January 2007 - The decision regarding the disposal of Kaučuk shares was made in accordance with the new UNIPETROL strategy, publicly announced in Autumn 2005, as well as with the Main Strategic Objectives and Key Targets Within Long-Term Activity Plan in UNIPETROL presented at the Shareholders’ General Meeting in April 2006. Following the corporate strategy, the company focuses on its core activities, namely refining, petrochemicals and fuel retail, and will continue to do so. From this perspective, Kaučuk represents a second tier business. What also played a role in the decision-making process to follow with the divestment was the fact that Kaučuk´s scale of operations and product portfolio, as compared to its European peers, does not allow for competitive advantages and does not optimize the value of the company on a stand-alone basis. Disposing of the company to a strategic investor allows UNIPETROL to maximize the value from the future business relations with Kaučuk by sharing the synergies which the new investor. The proceeds obtained from the sale of Kaučuk will enable UNIPETROL to invest more in its core businesses and to further restructure the debt within the whole group. “We prefer to be the top player in a few segments than to be an average player in many”, said François Vleugels, CEO of UNIPETROL.

To achieve the best result possible and to maximize the value for UNIPETROL and its shareholders it was essential to run the tender in line with the best standards and practices followed in similar M&A transactions. “Similar to the sale of Spolana, the whole divestment process as well as the terms of the transaction were negotiated in consultation with and checked by independent experts”, said Dariusz Marzec, CIO of UNIPETROL. “Everything was also under the close scrutiny of the Supervisory Board”, he added.

The Board of Directors of UNIPETROL has applied the rule of transparency in the divestment process with regular monitoring by the Supervisory Board and its respective committees. The transaction was subject to approvals by corporate bodies of UNIPETROL, which approvals were granted prior to the completion of the sale process.

In February 2006, thirty-two investors identified as potentially interested in the acquisition of Kaučuk were invited to participate in the tender. Eleven investors, which expressed their interest, were at the next stage provided with the Information Memorandum. Measures assuring the maximum objectivity were adopted in the process. Selection of the bidders to the next stages of the process was always based on the pre-defined and professional set of evaluation criteria which were established in cooperation with external advisors.

In properly protecting UNIPETROL and its shareholders, the priority of UNIPETROL’s Board of Directors, the evaluation was based on maximization of proceeds from the transaction on the one hand and optimization of an on-going business relationship between Kaučuk and the rest of UNIPETROL Group on the other.

Prior to submission of the bids, the following criteria for the evaluation of initial offers were defined:
• financial parameters of the offer;
• investor’s intent/approach towards creation of a joint venture with UNIPETROL;
• proposed development program (including intent towards a further company’s development and the role it would play in the bidder’s capital group/investment portfolio, planned production of monomers, polystyrenes as well as elastomers, intended capex); and
• bidders’ credibility.

In May 2006, seven initial offers were submitted by both industrial and financial investors. The offers were of an indicative kind and, as such, subject to later due diligence findings. Three investors, whose offers were ranked highest in the evaluation process, were allowed to conduct a due diligence review in Kaučuk which took place between 5th and 16th June 2006, with additional management sessions held on 19th and 20th June 2006. On 3rd July 2006, UNIPETROL received three post due diligence offers, which were consequently evaluated towards the criteria consistent with those adopted in the previous stage of the tender. As a result of the evaluation, the offer submitted by Dwory was selected as the best offer. On 11th July 2006, UNIPETROL decided to commence exclusive negotiations with Dwory.

“Dwory is an investor who is able to add value to Kaučuk and bring its expertise and professional experience to the company”, said François Vleugels. Dwory turned out to be the investor, compared to other bidders, who will be best able to share with UNIPETROL the synergies from the acquisition of Kaučuk. This is mainly due to geographical, market and capital conditions.

An important justification for the purchase price, as well as for the other terms negotiated between UNIPETROL and Dwory, were the expert opinions presented by independent external advisors. Komerční banka, which was the leading financial advisor in the process, prepared a market value assessment which was afterwards reconfirmed by VOX Consult. Further, reputable international firm Deloitte, after having analyzed the terms and conditions of the transaction, concluded that the consideration to be paid by the investor for Kaučuk shares is fair from the financial point of view. Last but not least, VOX Consult prepared the review of all tender procedures and documentation with the conclusion that the tender had been conducted in line with the standards and practices applicable for similar M&A transactions. The valuations provided by the three experts ranged between CZK 3.4 and CZK 5.4 billion, with the valuation for the purposes of fairness opinion at the level of CZK 4.2 – 4.6 billion.

Besides the purchase price, other important conditions were agreed. Dwory, as the future owner of Kaučuk, have to ensure, among others:
· undisturbed operations of the butadiene extraction unit as the essential element of the chain: steam cracker – butadiene extraction unit – refinery;
· creation of a joint-venture between UNIPETROL Group (51%) and Kaučuk (49%) concerning the construction and operation of a new butadiene extraction unit,
· processing of C4 from Chemopetrol and sales of Raffinate 1 to UNIPETROL Rafinérie;
· continuation of ethylene and benzene off-takes from Chemopetrol and future operation of ethylbenzene unit by Kaučuk;
· supplies of energy, steam, water and site services by Kaučuk to Česká rafinerská;
· continuation of all major contracts with UNIPETROL Group companies;
· allocation of the parties’ obligations resulting from any impact Kaučuk has had or might have in the future on the environment;
· future operation of energy unit by Kaučuk; and
· cooperation on activities allowing for future transfer of the land owned by UNIPETROL on which Kaučuk operates (to be carried out after transaction closing).

The contract also addresses the fine imposed, jointly and severally, on Kaučuk and UNIPETROL by the European Commission for participating in an alleged cartel aimed at prices fixing and sharing of customers for certain types of synthetic rubber (it relates to the period of 1999-2002). Although both companies strongly defended their positions before the European Commission, the fine of EUR 17.55 million was imposed. UNIPETROL and Kaučuk agreed to split the amount equally (50% each) pursuant to applicable Czech law since the European Commission’s decision does not specify any other split of the penalty. In addition, the following risk division mechanism has been agreed in case the final decision regarding the fine results in a change of the fine and/or its split between Unipetrol and Kaučuk:
· a possible decrease of purchase price if, under the final decision, (i) the fine to be paid by Kaučuk is higher than Kaučuk’s 50% of the current fine and (ii) UNIPETROL is returned the amount from the European Commission – the maximum potential exposure of UNIPETROL is limited to EUR 5 million, and
· a possible increase of the purchase price primarily in case of any loss that UNIPETROL might incur as a result of any third party claims relating to facts investigated by the European Commission.

Unipetrol and Dwory also agreed on a possible adjustment of the purchase price as a result of claims asserted by any governmental authority or private third party in connection with environmental conditions caused by Kaučuk (the adjustment is limited by 10% of the purchase price and may be claimed only within a period of 5 years from the closing of the transaction).

Although signed today, the closing of the transaction (i.e., settlement of the purchase price in exchange for Kaučuk shares) is subject to several conditions precedent to be fulfilled by both Dwory and UNIPETROL. Among them, there are necessary clearances by relevant antimonopoly authorities, performance of an environmental audit to identify all existing environmental conditions on the land used by Kaučuk and the execution of commercial contracts based on the already agreed principles assuring further smooth functioning of UNIPETROL Group. The satisfaction of these conditions may influence the closing to occur within approximately two to three quarters from now on.

For more information, please visit www.UNIPETROL.cz

UNIPETROL is a group of companies operating in the oil and petrochemical industry in the Czech Republic. In 2005 UNIPETROL became part of PKN ORLEN, the largest downstream oil company in Central Europe. UNIPETROL primarily focuses on crude oil processing, fuels distribution and petrochemical production. In all these areas the UNIPETROL Group is one of leading players in both the Czech and Central European markets. In 2005 UNIPETROL recorded revenues amounting to CZK 81 billion and a net profit of CZK 3.5 billion.

KAUČUK is one of the largest chemical companies in the Czech Republic and the sole producer of polystyrene plastics and synthetic rubber. Constituting Kaučuk’s core business, polystyrene plastics and synthetic rubber make up over 71% of its sales. The company also produces butadiene, styrene monomers and Raffinate 1. The total company’s sales reached EUR 349 million in the year 2005. Kaučuk is integrated with upstream processors of feedstock suppliers, mainly ethylene, benzene and C4 fractions. Almost all of the company’s raw materials are purchased from the companies of UNIPETROL Group, especially from Chemopetrol. Kaučuk has a strong export position which represents approximately 67% of its total sales. The company sells to 39 countries with over 50% of sales directed to EU member states. Key destinations are Germany, Poland and Italy.

Contact:
Michaela Lagronová
Spokesperson
Mobile: (+420) 602 304 708
e-mail: michaela.lagronova@unipetrol.cz