Polski Koncern Naftowy ORLEN Spólka Akcyjna : PKN ORLEN has European Commission’s clearance for acquisition of Grupa LOTOS

​The European Commission has conditionally cleared the acquisition of Grupa LOTOS by PKN ORLEN. Under the negotiated conditions, the combined group may further develop its upstream, downstream, logistics, retail and wholesale business across Europe. The merger with Grupa LOTOS is an important step towards building a strong multi-utility group with international presence, capable of successfully competing across markets.
The merger of PKN ORLEN and Grupa LOTOS will significantly strengthen the group's bargaining position in its dealings with trade partners from the US, the Middle East and Russia. It will also facilitate starting new business relations. It will be of key importance to ensuring the security of fuel and energy supplies for Poland and for Central and Eastern Europe. Optimised logistics in feedstock procurement, product distribution and other areas will also translate into stable prices for customers.'The European Commission's clearance of the merger between PKN ORLEN and Grupa LOTOS indicates that strong multi-utility groups are needed in Europe. This is a historic moment for the two companies and the entire Polish economy. By combining our potentials, we will be able to face the challenges of energy transition, as a low-carbon economy requires huge investments. With our joint financial and human capitals, we will be well placed to take on new projects designed to strengthen our competitive power and support further expansion on the global market. I am confident this merger will benefit both the group's shareholders and customers,' says Daniel Obajtek, CEO and President of the PKN ORLEN Management Board. 'We have consistently and successfully negotiated with the European Commission to ensure the best possible terms of the acquisition for all the parties involved. As a next step, we will hold talks with potential partners with the aim of implementing the agreed remedies. In the first place, we will negotiate an attractive asset exchange deal. We are well prepared to do that. We have our action plan so that we can take full advantage of the synergies generated by the acquisition in the future,' adds the President of PKN ORLEN.The consolidation of Grupa LOTOS and PKN ORLEN will increase the combined entity's ability to finance large, multi-billion dollar projects, which will drive forward Poland's economy with added benefits for the environment, including the planned offshore wind farm development. The two companies will gain opportunities to enter new and expand faster their existing business areas.LOTOS would remain a separate entity for tax purposes, which means that tax revenue streams will continue to flow to the city of Gdańsk as they have done before. The company will retain its headquarters in Gdańsk and pay its corporate income tax to the city. The same applies to property tax.

Once combined, the strong group will be better placed to engage in initiatives spanning social outreach, culture and sports across the Pomerania region. A coordinated CSR policy will deliver stronger and more thorough support for local communities.
The remedies agreed with the European Commission include commitments entered into by PKN ORLEN and Grupa LOTOS with respect to fuel production and wholesale, fuel logistics, retail, aviation fuel and bitumen. The manner of fulfilling specific conditions for the transaction and its other details will be determined with potential external partners in the course of separate discussions and negotiations. Both the purchasers of assets covered by the remedies and the terms of relevant agreements will be subject to the Commission's approval.
The remedies include changing the business model of the Grupa LOTOS refinery in Gdańsk, based on which a joint venture will be established. Upon the merger with Grupa LOTOS, PKN ORLEN will become the operator of the JV refinery to guarantee Poland's fuel security. Given the scale and complexity of the proposed transaction, from the beginning of the process the Commission expected that the entire refinery be divested. For two years, PKN ORLEN was working to develop an alternative model that would be convincing to the EC, while enabling PKN ORLEN to pursue its strategic objectives. Eventually, it was agreed that an external partner would acquire a 30% equity interest.
In its clearance, the Commission imposed a requirement that a part of the retail network be divested. In such a case, PKN ORLEN and Grupa LOTOS will continue to have the largest service station network in Poland, while being able to strengthen their retail presence on the European market. PKN ORLEN's primary objective will be to find a partner with which to exchange its Polish assets into similar assets in other parts of Europe on the most attractive terms possible. Remedies for the retail segment are a standard practice in proceedings carried out by the European Commission. In the case of the acquisition of control over Dansk Fuels by Statoil in 2016, approximately 70% of the service stations controlled by Dansk Fuels were at stake. Finally, an external buyer acquired approximately 30% of them.
As regards storage, the combined capacities of PKN ORLEN and Grupa LOTOS will be reduced by a mere 10%, representing 7% of the total storage space in Poland. Compared with previous deals of this kind in Europe, this is a major success. Seeking clearance of the transaction in which it took control over Elf in 2000, TotalFina made a commitment to divest a major part of the fuel infrastructure, comprising pipelines and a number of fuel depots located in different regions of France, with a view to increasing competition on the wholesale fuel market. The remedies covered 14 fuel terminals throughout France.
Consolidation processes in the oil sector in other European countries have long been completed. Examples include Hungary's MOL, Norway's Equinor, Spain's Repsol, Portugal's GalpEnergia, Italy's ENI, and France's TOTAL. In all these markets, mergers of the largest companies not only did not disrupt market competition but gave rise to favourable changes. As a result of the remedies, the consolidation process in Poland will in no way affect competition in either fuels or logistics, which is guaranteed by the EU antitrust law.
The acquisition of Grupa LOTOS by PKN ORLEN was initiated 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 Grupa LOTOS. In April 2018, a due diligence process was commenced at Grupa LOTOS to examine its commercial, financial, legal and tax positions ahead of the planned acquisition. In November 2018, a draft application for approval of the concentration was submitted by PKN ORLEN to the European Commission. While working on the document, PKN ORLEN and Grupa LOTOS received hundreds of enquiries from the European Commission, to which they promptly replied. Effective cooperation between all the parties led to the successful drafting of a final application, which was submitted to the Commission in early July 2019. At the end of August 2019, an agreement was signed between PKN ORLEN, the Polish State Treasury and Grupa LOTOS to define a framework structure for the proposed transaction. In late September 2019, as a matter of customary practice, the Commission issued a standard 'stop the clock' decision for the second phase of the merger negotiations, which was stopped in early March 2020. On April 8th 2020, the Commission provided PKN ORLEN with an opportunity to review the findings of analyses it had carried out as part of the second phase of the procedure. In line with the practice established for that phase, the 'Statement of Objections' procedure was used. At the end of April 2020, PKN ORLEN submitted a formal proposal of remedies and then, in early May, a market test began.