Energy 17 May, 2021 10:00 am   

Orlen is waiting for the law on tender offers to be amended. The company may not have enough time to take over Lotos and PGNiG without those changes


PKN Orlen, the Lotos Group, PGNiG and the State Treasury signed an agreement on cooperation on the basis of which PKN Orlen will take over the Lotos Group and PGNiG. PKN Orlen is hoping that the amendments to the Act on public offerings will enter into force. Their goal is to change the current 33 and 66 percent threshold that mandates a tender offer to 50 percent. However, the legislation process has barely started – writes Bartłomiej Sawicki, editor at

Yesterday PKN Orlen, the Lotos Group, PGNiG and the State Treasury signed an agreement on cooperation. It will enable PKN Orlen to take over the Lotos Group and PGNiG. In result of the merger, the shareholders of the Lotos Group and PGNiG, in return for their stock in the share capital will receive new shares in the upped share capital of PKN Orlen and become the company’s shareholders.

The Act on public offerings needs to be urgently amended

The key factor that will make the non-cash acquisition possible is amending the Act on public offerings. The Financial Supervision Authority (KNF) has been pushing for these changes since the end of 2020. According to the draft proposed by the KNF, the model for the tender offer to sell or exchange stocks should be significantly altered.

Currently the achieving or exceeding the threshold may only take place by way of a tender offer. According to the amendment, the requirement to announce the tender offer is to be derivative. Only crossing the 50 percent threshold of the total number of votes is to entail the duty to announce a tender offer for the sale or exchange of all of the remaining stocks of a given company. Currently, the act mentions two thresholds. According to the Act, the purchasing company has to announce a tender offer when the total amount of taken over votes is 33 and 66 percent. PKN Orlen is hoping the Act on public offerings will be amended to change the threshold that makes the tender offer mandatory to 50 percent. The government is to start working on amending the Act on public offerings.

In result of the merger, the State Treasury will increase its shares in Orlen from the current 27 to 50 percent. The company is hoping that this won’t force the State Treasury to announce a tender offer for 66 percent, but for 50 percent. For instance, the Treasury owns a 53 percent and 71.1 percent share in Lotos and PGNiG respectively.

Daniel Obajtek, the CEO of Orlen, would like this level to not exceed 50 percent, so that the company could make its own decisions. Time is key here, because the Council of Ministers has only started analyzing the amendment, which should enter into force already in September to enable the next stages of the merger to take place. The entire operation should be finished this year. The process is coordinated by the Ministry of Finance, and the draft is now sitting with the government’s legal committee.

According to Orlen, such a cashless transaction is the optimum solution for all the parties involved. On the one hand, it is said to be safe for private investors, because their shares in Lotos and PGNiG will be replaced with Orlen’s shares in line with the quotas. On the other, Orlen will not have to use cash, and it will invest the money. It’s been questioned why the threshold should be at 50 percent, and whether the draft amendment has been specifically written for the purposes of the merger. However, KNF proposed to amend the Act already six months ago. Back then it claimed that the reason behind the amendment was the need to adapt the law to the current market conditions and the EU law. Importantly, the participation of the State Treasury at about 50 percent is one of the most popular thresholds at energy tycoons. Denmark’s Orsted, which is transforming from a gas company to a RES business, is owned at 50 percent by the Danish government, while the Norwegian government owns 67 percent of Equinor. These companies used to be in the fossil fuel business, but are now increasingly invested in RES. Orlen wants to take a similar path. It’s possible that after some time passes after the merger, Orlen will change its name, just like Orsted and Equinor did. However, this might be just to get rid of the words associated with fossil fuels (PKN – Polski Koncern Naftowy – Polish Oil Concern). This is still a long way off.

A corporate step by step

The plan to merge Orlen with Lotos and PGNiG is to be ready by the end of September. It will include business justifications and quotas pertaining to exchanging and valuing the stock, prepared by independent financial institutions. All shareholders are to be treated in a transparent way that does not spark any controversies. This will be made easier by the economies of scale, coordination, and restructuring of all entities, including Orlen as well as dependent companies. The process also includes the synergy of logistics, extraction, split of competencies and centers of competency. The decisions on approving these transactions are to be made during annual general meetings that are to be held at the turn of October and November. For the merger to be approved Orlen’s AGM needs 2/3 of the votes to agree, Lotos needs 4/5 and PGNiG 3/4. After that the new company will be registered. The structure of the transaction is to put a rest to the concerns of the stock exchange, politicians and investors. Time will tell if that will be the case.

How will the stocks be exchanged? The Lotos and PGNiG shareholders will receive Orlen’s shares as part of the upped capital of the number of shares. So, there won’t be any Lotos or PGNiG stocks. Orlen’s capital will increase after valuations are made by independent institutions. Additional shares will be issued to satisfy all of the shareholders of Lotos and PGNiG. So, the investors will receive Orlen’s shares, whose value will be proportional to their participation in the previous company. The number of stocks they will receive will correspond with the total of the capitalization of PGNiG and Lotos, which is currently estimated at PLN 48 billion. The capitalization of PKN Orlen is PLN 31 billion. If, after the valuation and calculation of the quota, the State Treasury will have over 50 percent, it will have to sell those shares that exceed the threshold that is to be set in the Act. So, Orlen needs to issue an amount of shares that correspond to the sum of PGNiG and Lotos shares, estimated at over PLN 40 bn. Considering yesterday’s stock prices, the new company will be worth about PLN 80 bn.

Investors were mostly positive about the announcement made today. Yesterday Orlen’s value on the stock exchange went up by about 1.39 percent. Investors were definitely happy about the decision on the cashless transaction. The other positive piece of news was about dividend policy. PLN Orlen will recommend to maintain its dividend policy, which offers a minimum of PLN 3.5 per share, after the merger with the Lotos Group and PGNiG. The company’s recommendations is that a minimum of PLN 3.5 per share should be paid out as dividend. “A stable and predictable dividend policy increases the attractiveness of the company and the stability of capitalization,” Obajtek argued.

Key agreements yet to come

The mentioned valuation may be impacted by Orlen’s decisions, which are to be made in the coming weeks. This is mostly about starting the investment in the Ostrołęka C Power Polant, and signing a deal with a contractor that will build a new, this time, gas unit. The CEO of Orlen has ensured that decisions on this matter will be made in the coming weeks, and the investment wil start this year. When it comes to the key element of the merger, which is the take over of the Lotos Group, and the implementation of the remedial measures, everything should be done and dusted within 2-3 months. Orlen argues that on the basis of the offers that have been already made, it is likely that the assets could be exchanged with another entity on terms that would satisfy Orlen. There may be 3-9 partners that would join Orlen in implementing the EC’s remedial measures imposed on the company due to its merger with Lotos. Obajtek did not directly comment on the information that the company was reportedly interested in entering the Slovenian market, but he did hint at the fact that at this point only refineries and fuel markets in Central and Eastern Europe had potential to grow. However, Orlen is interested in the entire supply chain, which, apart from retail, includes wholesale trade and access to production or storage.