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PKN Orlen receives clearance for merger with LOTOS Group

| By Mary Bailey

PKN Orlen (Płock, Poland) has secured the European Commission’s clearance of its intended merger with the LOTOS Group (Gdańsk, Poland). Closing an important phase of the merger process, the antitrust clearance marks a leap forward in building a strong multi-utility group that will effectively carry out the energy transition and ensure Poland’s energy security and independence in terms of feedstock supplies. The new ORLEN Group will be based on a fully integrated value chain, from upstream exploration and production, through refining, petrochemical production and advanced power generation, to retail. This means long-term profits for the companies and their shareholders, stability of energy supplies for the Polish economy at the lowest possible prices, a wide range of attractive services for customers, and even greater support for social initiatives. The European Commission’s approval means its full acceptance of the agreements negotiated by PKN ORLEN as well as the partners with whom these agreements will be implemented. It also confirms that the merger will in no way affect competition in any area of business activity, neither in Poland nor in the region. Final consent to the merger must be granted by the shareholders of the two companies during their respective General Meetings.

The merger will be effected through the acquisition of Grupa LOTOS S.A. by PKN ORLEN S.A. This means that, upon the acquisition, the existing shareholders of Grupa LOTOS will take up new shares in the increased share capital of PKN ORLEN and become the latter’s shareholders. As a result of the merger between PKN ORLEN and Grupa LOTOS, the Polish State Treasury’s equity interest in the combined entity will increase to approximately 35%. Assuming a subsequent merger with PGNiG, this stake will increase significantly.

The merger between PKN ORLEN and the LOTOS Group is linked inextricably to the energy security of Poland and the entire region of Central Europe, including Lithuania, Latvia, Estonia, the Czech Republic and Slovakia. The merger will create a single, strong multi-utility player with annual revenue of approximately PLN 250 billion, which will successfully carry out business on a competitive market and provide services to approximately 100 million customers in Europe, ensuring security of fuel and energy supplies.

Its merger with the LOTOS Group and PGNiG will strengthen PKN ORLEN’s position as the leader in energy transition through investments in low- and zero-carbon energy sources. By investing in green energy, including offshore and onshore wind farms and photovoltaics, as well as alternative fuels, small modular reactors and biomaterials, the Group will significantly contribute to reducing Polish economy’s dependence on fossil fuels.

The merged Group will also seek to achieve operational excellence in the existing business areas such as upstream and refining. Integration of the assets currently owned by different entities will bring about efficiency improvements, while the strategic partnerships will contribute to enhanced energy security of Poland and the whole of Central Europe, a thing of utmost importance in the current geopolitical context.

A vital part of the merger between PKN ORLEN and the LOTOS Group is the agreement with Saudi Aramco, which means tighter bonds between PKN ORLEN and a stable partner, the world’s largest oil company with extensive experience and technologies that will enable further strong growth of the combined entity. Agreements on joint petrochemical and R&D projects have also been signed. An added benefit of the partnership forged with Saudi Aramco will be an increase in crude oil deliveries. Following the merger with the LOTOS Group, supplies from the Arabian Peninsula will cover as much as 45% of the new ORLEN Group’s overall demand. For the Group this arrangement will mean a reliable source of crude oil of sustainably high quality, and for the Polish economy – it will mark further progress in the efforts to diversify crude oil supplies.

PKN ORLEN has also engaged with Unimot as a partner in carrying out the merger remedies in logistics. The agreement entered into between the two companies covers the sale of nine fuel terminals with an aggregate storage capacity of 350 thousand cubic metres, including five locations of LOTOS Terminale: in Czechowice-Dziedzice, Jasło, Piotrków Trybunalski, Poznań and Rypin, and four of PKN ORLEN: in Bolesławiec, Szczecin, Gutkowo and Gdańsk. These depots are not regarded as strategically important to PKN ORLEN, accounting for a mere 6.7% of Poland’s total fuel storage capacity. As a result, the Group will retain a 54% market share.