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PKN Orlen has requested permission from the European Commission to take over Lotus
Author:Mariusz Dasiewicz
PKN Orlen has submitted a formal request to the European Commission to authorise the acquisition of LOTOS Group capital. The finalisation of the process will create one strong player with international potential, internally integrated, even more important in the oil supply market.
The proposal submitted by PKN Orlen includes, inter alia, the assumptions of the transactions, a description of the activities of the parties on specific relevant markets and an argument concerning the impact of the transactions on competition in these markets.
The proposal includes a package of internal documents for both companies to allow the European Commission to verify the relevance of the arguments raised.
PKN President Orlen Daniel Obietek said a few days ago that he expected the European Commission's decision to authorise the acquisition of Lotus to take place within 5-6 months at the latest.
The process of taking over the Lotos Group's capital by PKN Orlen was initiated in February 2018, by signing the Intent letter with the Treasury, which holds 53.19 percent of votes in Gdańsk.
The document outlines the framework of the transaction structure. In the first stage PKN Orlen plans to acquire 32.99% of shares from the Treasury. In the next one it will be necessary to announce a call for the purchase of shares representing up to 66% of the votes.
In April 2018 the due diligence process began in Gdańsk, which is to examine its commercial, financial, legal and tax condition for acquisition.
Last November, PKN Orlen sent the European Commission a preliminary version of the application for approval of concentration. During the work on the Orlen document and the LOTOS Group, they received hundreds of questions from the Commission, to which they subsequently responded. Good cooperation between all parties has led to the final design of the proposal.
PKN President Orlen Daniel Obietek points out, justifying the point of merging both fuel companies, that in business scale matters and is understood by all significant European and global players in the fuel and energy sector, who have long gone by consolidation processes.
"One strong player is the ability to compete effectively in a demanding market, to increase the stability of the national economy, including in the area of fuel prices, and to intensify development-oriented investments. We have taken up this challenge because the merger is necessary for the business future of both companies, building their value for shareholders, energy security of Poland, as well as the interests of individual customers and local communities," said the President of Orlen.
"The efficient conduct of the process is a priority for us, and the submission of a formal proposal to the Commission shows best that we are determined and effective in implementing it," he added.
The consolidation of PKN Orlen and Lotos Group is the integration of Poland into the global trend of building significant players in the fuel and energy market. This is the response of Polish companies to global trends in the refining industry, which will reduce the risk of liquidity loss by domestic refineries in the future. The consolidation processes in this industry have been going on for a long time and are primarily driven by the need to ensure the energy security of countries. Similar consolidations in the sector were carried out e.g. by Hungarian MOL, Norwegian Statoil, Spanish Repsol, Portuguese GalpEnergy, Italian ENI, Austrian OMV, French TOTAL.
"All consolidation processes in Europe have in no way reduced competition in these markets in the field of fuel or logistics. This will also be the case when PKN Orlen is merged with Lotos Group. The Polish market is very competitive in this area and that will not change in the future," said Obietek.
PKN Orlen assumes that the finalisation of the transaction will translate into greater investment opportunities, including in terms of asset development or foreign expansion. One strong player will ensure greater potential in this area while maintaining financial indicators at a safe level.
The combination of Orlen and Lotus will also be attractive due to technological and product complementarity and the position of companies in the fuel market.
With combined refining capacity, both capital groups will be able to produce a total of around 12 million tonnes per year of light products (mainly petrol) and 20 million tonnes per year of medium-sized distillates (mainly diesel and aviation fuel). About 2/3 of this production will come from Polish plants. In the future, further growth of these volumes is expected due to ongoing and planned development investments.
The combined entity is also a greater potential for significant research resources that are crucial for the sustainable development of each economy. PKN Orlen is currently building a Research and Development Centre in Płock, which aims to implement new technical solutions and work on new products and technologies. The Lotos Group will be able to benefit from both experience and infrastructure in Płock, including the Research and Development Centre and research centres in the Czech Republic.
One of the main beneficiaries of the merger process is to be Pomerania and its residents. With the strengthening of the Lotus, the number and scale of orders will increase, the company will enter new business areas and further develop those in which the Lotus is already active, including electro-motority and mining.
The seat of the company will remain in Gdańsk and here, on the same principles as today, will be some CIT taxes. The buildings of the Lotos Group will still be used, so the property tax revenues will remain in Gdańsk. Similarly, it will be with the redistribution of income from PIT of employees to local self-government.
Investment and development plans will involve the creation of new jobs. Commitment to prosocial, sporting and cultural activities in the region will also be strengthened.
Signature of the ER
