Polish Briefing 28 February, 2018 9:00 am   
Editorial staff

Polish Briefing: A merger of PKN Orlen and Grupa Lotos

What goes on in Poland on the 28th of February.

PKN Orlen and the State Treasury have agreed on the merger with Lotos

Representative of the State Treasury, Minister of Energy Krzysztof Tchórzewski and the President of PKN Orlen Daniel Obajtek signed a letter of intent regarding the commencement of the process of taking over capital control by PKN Orlen over Grupa Lotos yesterday.

By signing a letter of intent, PKN Orlen and the State Treasury undertook to enter into good faith talks aimed at conducting a transaction understood as acquisition by PKN Orlen directly or indirectly, a minimum 53% stake in the share capital of the Lotos SA Group. The transaction assumes the acquisition by PKN Orlen Grupa Lotos shares from its shareholders, including in particular from the State Treasury.

– The concept of merger of PKN Orlen and Grupa Lotos has been present in the economic sphere for over a dozen years, but there was no determination to implement this process. Maybe because such an important business decision was considered mainly in the category of emotions, not hard facts and figures – says Daniel Obajtek, President of the PKN Orlen Management Board. – Consolidation processes in this market have been going on for many years and to be competitive we have to catch up and be ready for new challenges facing the industry. The consolidated concern can compete better on the open European market.

Analysts: The fusion of Orlen and Lotos makes sense

From a fundamental point of view, the combination of Orlen and Lotos makes sense. The basic benefit is the monopolisation of the market and the improvement of margins – says Łukasz Bro- kuk, an analyst at DM BOŚ. In his opinion, the most likely scenario of the transaction was the exchange of Lotos shares for Orlen shares. The analyst expects Lotos to remain a listed company.

Fundamentally, the combination of Orlen and Lotos makes sense – assesses Prokopiuk and adds that in the opinion of DM BOŚ analysts, the shares of both companies should now grow, abstracting from the detailed solutions of the merger, which we do not know yet.

According to Prokopiuk, the basic advantage of the merger of both companies is the monopolization of the market and, consequently, the improvement of margins.

– It is difficult to judge how the merger transaction will look like in practice. The most probable scenario of the transaction is the exchange of Lotos shares for Orlen shares. We do not know what will be the intention regarding the future of Lotos’s shares: delisting or maintaining shares on the stock exchange. In our opinion, it is more likely that Lotos will remain on the stock exchange – said analyst DM BOŚ.