European Commission grants PKN ORLEN more time to implement remedies

PKN ORLEN is finalising agreements with its partners in the implementation of remedies, who will guarantee further business development of the companies subject to the proceedings. In parallel, measures are being taken to prepare both companies for the merger process. In view of its complexity and the challenging macroeconomic environment it is taking place in, additional time is needed to negotiate with the partners so as to secure the best possible transaction terms and enable the partners to obtain all the corporate consents and approvals required on their end. The European Commission has extended the deadline for implementing the remedies until January 14 2022. The merger of PKN ORLEN and LOTOS will be formally completed as scheduled, in the first half of 2022.

Our goal is to select such business partners who will guarantee energy security and robust growth of the combined companies. We are in the final straight of the stage leading to the execution of agreements with the partners. The extended deadline agreed with the European Commission for the submission of documents related to the implementation of the remedies provides us with convenient conditions to finish off all the necessary formalities. We intend make good use of the time we have been given. The priority is to carry out the transaction in such a way that it is beneficial to the Polish economy, both companies and their customers, and to their shareholders, who believe in the business rationale and success of this strategic project. This is confirmed, among others, by the conditional approval of the merger by the Extraordinary General Meeting of LOTOS, says Daniel Obajtek, President of the PKN ORLEN Management Board.

The combination of PKN ORLEN and LOTOS Group is part of the strategic plan to build a strong multi-utility group. The group will rely on diversified revenue sources, ensure Poland’s energy security and be able to successfully carry out the tasks resulting from the energy transition process. The first stage of this project was the acquisition of Energa in April 2020, which added renewable energy sources to ORLEN Group’s portfolio.

Concurrently with the ongoing negotiations with potential partners for the implementation of the remedies, steps are being taken to prepare both companies for the merger. Of key importance in the process of merging the companies were resolutions passed by the Extraordinary General Meeting of Grupa LOTOS on October 14th 2021, which make it possible to present the remedies to the European Commission. Importantly, the resolution approving the transfer of an organised part of business from Grupa LOTOS was supported by shareholders representing almost 90% of the share capital at the Extraordinary General Meeting. With that decision, it became possible to implement, on November 2nd 2021, an intra-group reorganisation consisting in integrating the entire refining complex within a single entity – LOTOS Asfalt. The spin-off of the Gdańsk refinery is a milestone in the implementation of the remedies. The documentation to be submitted to the EC will include all conditional agreements concerning sale to investors of all assets indicated by the European Commission in the conditional concentration decision, as well as all corporate approvals from PKN ORLEN and Grupa LOTOS, permitting the implementation of the remedies. The decision-making process on part of the EC can take about three months. To finally merge the companies, the consent of both Grupa LOTOS and PKN ORLEN shareholders will be required. The shareholder vote on the merger will take place following the receipt of a final merger clearance from the European Commission.

In a parallel effort to the process of merging with Grupa LOTOS, work is underway on PKN ORLEN’s acquisition of the PGNiG Group. The objective is to form a group with total annual revenue of approximately PLN 200bn and diversified EBITDA, estimated at approximately PLN 20bn. This means that in terms of capitalisation and financial results, the potential of the future Polish multi-utility group will match or even exceed that of its European competitors.

The acquisition of Grupa LOTOS by PKN ORLEN was initiated already in February 2018 by signing a Letter of Intent with the Polish State Treasury, which holds 53.19% of voting rights at the General Meeting of the Gdańsk-based company. In November 2018, a draft application for approval of the concentration was submitted by PKN ORLEN to the European Commission. In early July 2019, the final application was submitted to the European Commission, and on July 14th 2020 the Commission conditionally cleared the acquisition of Grupa LOTOS by PKN ORLEN. In August 2020, PKN ORLEN has signed a memorandum of understanding with the Polish State Treasury and Grupa LOTOS concerning its acquisition of Grupa LOTOS shares and thus control of the Gdańsk-based group. In May 2021, PKN ORLEN, Grupa LOTOS and the Ministry of State Assets signed an agreement on the structure of the new multi-utility group to be established through the merger of three companies: PKN ORLEN, LOTOS and PGNiG.