PKN ORLEN Moves a Step Closer to Merger With LOTOS Group

PŁOCK, Poland, July 4, 2019 /PRNewswire/ -- PKN ORLEN has just filed a formal application for the European Commission's approval of its proposed acquisition of LOTOS Group. The completion of the process would result in a single strong internally integrated entity with international potential, whose position in the oil supply market would be even more prominent.

"In business, scale matters. This rule of thumb is understood by all major European and global players in the fuel and energy business, who have long since gone through their own consolidation efforts. A single strong entity would be well-placed to successfully compete in a demanding market, lend greater stability to the national economy, also in fuel prices, and ramp up its own growth-oriented investments. We have taken up this challenge seeing the merger as a requisite driver of the business future of the combined companies, their shareholder value and energy security of Poland, serving the interests of both retail customers and local communities. Smooth execution of the process is a priority for us, the formal application we have just submitted to the European Commission best showing how determined and effective we are in its pursuit," says Daniel Obajtek, President of the Management Board of PKN ORLEN.

PKN ORLEN's application includes, among other things, the proposed concept of the transaction, overview of the parties' activities in certain relevant markets, and arguments concerning the merger's impact on competition in those markets. It is accompanied by a package of internal documents of both companies, which are to allow the European Commission to review the validity of PKN ORLEN's case.

The acquisition of LOTOS Group by PKN ORLEN was initiated in February 2018 by signing a Letter of Intent with the Polish State Treasury, holding 53.19% of voting rights at the General Meeting of LOTOS Group. The letter outlined the transaction structure. In the first stage, PKN ORLEN would acquire 32.99% of LOTOS Group shares from the State Treasury. Next, a tender offer for shares representing up to 66% of total voting rights at the General Meeting of LOTOS Group would have to be announced.

In April 2018, a due diligence process was launched at LOTOS Group, involving examination of its commercial, financial, legal and tax situation from the point of view of the proposed acquisition. In November last year, a preliminary draft of the application for approval of the concentration was sent by PKN ORLEN to the European Commission. While working on the document, PKN ORLEN and LOTOS Group received hundreds of enquiries from the European Commission, to which they promptly replied. Good cooperation between all the parties involved led to successful drafting of the final application.

With the consolidation of PKN ORLEN and LOTOS Group, Poland is joining the global trend towards building major players on the fuel and energy market. It is a response of the Polish companies to global trends in the refining industry, which would reduce the risk of liquidity loss by the domestic refineries. Consolidation processes in this sector have been ongoing a long time, driven primarily by the need to ensure national energy security. Similar sectoral consolidations were undertaken by such refiners as Hungary's MOL, Norway's Statoil, Spain's Repsol, Portugal's GalpEnergia, Italy's ENI, Austria's OMV, and France's TOTAL.

None of the consolidation processes in Europe have in any way limited competition on the respective markets in terms of fuels or logistics. This would also be the case with the merger of PKN ORLEN with LOTOS Group. The Polish market is very competitive in this area and this is not going to change in the future.

The transaction would open up greater investment opportunities in asset development, foreign expansion and other areas. A single strong player would have greater capacity to invest, while keeping its financial ratios at a safe level. In this respect, the transaction would significantly strengthen the Polish economy.

The merger between PKN ORLEN and LOTOS Group would also deliver benefits from the companies' complementary technologies and products as well as their position on the fuel market. Thanks to the combined refining capacities, the plants which are now operated by the two groups would be able to achieve an annual output of approximately 12 million tonnes of light products (mainly gasoline) and 20 million tonnes of medium distillates (mainly diesel oil and aviation fuel). Importantly, about two-thirds of this output would come from Polish plants. Going forward, these volumes are expected to increase even further in connection with the ongoing and planned growth investment projects.

The merged entity would be much more comfortably positioned to allocate significant funds for research, which is crucial for the sustainable development of any economy. PKN ORLEN is currently building a Research and Development Centre in Płock, whose work would be focused on implementing new technical solutions and on developing new products and technologies. The LOTOS Group team would be able to draw on PKN ORLEN's experience and use the resources available at its Płock facilities, including the Research and Development Centre and similar centres in the Czech Republic.

CONTACT: PKN ORLEN Press Office: media@orlen.pl, +48-(24)-256-71-71

Web site: https://www.orlen.pl/

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