Letter of intent concerning acquisition of Grupa LOTOS S.A. by PKN ORLEN S.A.

By signing the letter of intent, PKN ORLEN S.A. and the State Treasury agreed to commence, in good faith, negotiations to execute a transaction whereby PKN ORLEN S.A. will acquire, directly or indirectly, at least a 53% interest in Grupa LOTOS S.A.’s share capital. As part of the transaction, PKN ORLEN S.A. is to purchase Grupa LOTOS S.A. shares from its shareholders, including in particular from the State Treasury, in accordance with the Polish Act on Public Offering, the Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies of July 29th 2005.

The acquisition will be possible on condition that relevant amendments are made to the provisions of the Act on the Management of State-Owned Assets of December 16th 2016 (Dz.U. of 2016, item 2259) whereby the State Treasury is forbidden to sell Grupa LOTOS shares.

‘The concept of merging PKN ORLEN and Grupa LOTOS has been spoken of for over a dozen years, but there has not been enough determination to achieve this objective, perhaps because an important business decision such as this was underpinned by emotions rather than hard facts and figures,’ says Daniel Obajtek, President of the PKN ORLEN Management Board. ‘Consolidation processes have been carried out on that market for many years, and to be competitive we have to make up for the lost time and be ready to embrace new challenges facing the petroleum sector. The consolidated company will be better positioned to compete on the open European market.
The model of the proposed  transaction, as well as its timeline and detailed terms, require thorough analysis and will now be worked out,” added Mr Obajtek.

The parties to the letter of intent want the transaction to create a strong and integrated corporate group, better positioned to compete in international markets and resilient to market fluctuations, by exploiting operational and cost synergies between PKN ORLEN and Grupa LOTOS.

“The business decision to build a strong, integrated fuel and petrochemical group is needed for multiple reasons: the future of the two companies’ business, creation of shareholder value, national energy security, and the interests of retail customers. With this front of mind, we are determined to smoothly and effectively follow the process through to completion with the support from the State Treasury as the major shareholder, while respecting the rights of all shareholders and taking care of employees,” Mr Obajtek added. “The letter of intent we have signed marks a transition from long years of planning and conceptual work to actual implementation. Due to formal reasons, including required approvals, the process will take about a year. We are committed to maintaining full transparency and we will keep all interested stakeholders informed about each next step,” stressed the President of the PKN ORLEN Management Board.

The transaction is subject to a number of conditions, including relevant corporate approvals and concentration clearance from the anti-trust authorities.