In LOTOS 2021 will be remembered as the year in which the structure of the merger with PKN Orlen was defined, consent was obtained to enter into demerger agreements and acceptance was obtained for internal transformation – also to set up a processing refinery. It was a time of demanding challenges which we managed to address.
Status of work on the acquisition of Grupa LOTOS S.A. by PKN ORLEN S.A.
On February 27th 2018, the Energy Ministry and PKN Orlen S.A. signed a letter of intent on the acquisition of Grupa LOTOS S.A. In July 2019, PKN Orlen S.A. filed an application with the European Commission regarding its planned acquisition of an equity interest in Grupa LOTOS S.A. 2019 saw the completion of a due diligence process carried out by PKN Orlen to investigate the financial, tax, commercial and legal position of Grupa LOTOS S.A. in connection with the intended acquisition.
On July 14th 2020, the European Commission conditionally cleared the acquisition of Grupa LOTOS by PKN Orlen S.A.
Therefore, PKN Orlen S.A. is required to implement remedies set out in the decision to prevent adverse effects of the proposed concentration on competition in the relevant markets.
The remedies include structural and behavioural commitments relating to the structure and policies of the undertakings involved in the concentration, as described in Current Report No. 21/2020 of July 14th 2020 (European Commission clears Lotos’ acquisition by PKN Orlen subject to conditions).
On July 14th 2020, the European Commission conditionally cleared the acquisition of Grupa LOTOS by PKN Orlen S.A. Therefore, PKN Orlen S.A. is required to implement remedies set out in the decision to prevent adverse effects of the proposed concentration on competition in the relevant markets.
On August 18th 2020, Grupa LOTOS S.A. signed a cooperation agreement with PKN Orlen S.A. and the State Treasury. It concerns the completion of PKN Orlen S.A.’s acquisition of Grupa LOTOS shares from the State Treasury.
On March 12th 2021, in Current Report No. 10/2021, the Company announced that it had commenced preparations to reorganise Grupa LOTOS S.A., as part of which the Management Board had given a general approval for internal organisational measures aimed at optimising the Group’s structure and preparing it for implementation of the model whereby the remedies necessary to go ahead with the intended acquisition of control over the Company by PKN Orlen S.A. are to be carried out, i.e.:
- separation of an organised part of Grupa LOTOS’s business comprising the refining assets and its contribution to LOTOS Asfalt Sp z.o.o (which is wholly-owned by the Company); LOTOS Asfalt Sp. z o.o. would then become a special purpose vehicle 30% of whose shares would be sold to an independent operator;
- transfer of shares in LOTOS Biopaliwa from LOTOS Terminale to the Company;
- transfer of shares in LOTOS Infrastruktura to LOTOS Terminale;
- transfer of logistic assets of LOTOS Infrastruktura to LOTOS Terminale.
In October 2021, the Extraordinary General Meeting of Grupa LOTOS S.A. approved the reorganisation of the LOTOS Group proposed by the Management Board. The adopted resolutions will enable the LOTOS Group to prepare for the implementation of the remedies presented by the European Commission in July 2020.
The shareholders’ approval gave the Management Board the green light to implement an intra-group reorganization that would involve the integration of the entire refining complex into a single entity – LOTOS Asfalt. The shareholders also approved the transfer of shares in LOTOS Biopaliwa from LOTOS Terminale to Grupa LOTOS S.A. The Extraordinary General Meeting also gave conditional consent to the disposal of 30% of shares in LOTOS Asfalt and 100% of shares in the following companies: LOTOS Biopaliwa, LOTOS Terminale, LOTOS Paliwa (and companies that will acquire part of LOTOS Paliwa’s assets as a result of its demerger), as well as the entity that will acquire part of LOTOS Asfalt’s assets as a result of its demerger (spin-off of its branches in Southern Poland).
Integration of the refinery complex took place in November 2021 through acquisition by LOTOS Group S.A. of new shares in LOTOS Asfalt sp. z o.o. in exchange for in-kind contribution in the form of organised part of business (comprising a set of tangible and intangible assets used by the Company to conduct refining activities in Gdańsk). These measures are based on the adopted intra-organisational solutions to optimise the structure of the LOTOS Group and to prepare the organisation for the implementation of the remedies.
In November 2021, PKN Orlen received the European Commission’s consent to extend the deadline for the implementation of the remedies required from PKN Orlen to prevent the adverse effects of the proposed concentration. The new deadline was set for January 14th 2022, with the extension justified by the need to finalise the negotiation process with partners participating in the talks on implementing the remedies and to allow the partners to complete the decision pathway.
In January 2022, four partners selected to implement the remedies were presented. Saudi Aramco was selected the investor in refining assets (30% of shares in the refining JV), wholesale and aviation fuel. MOL is the partner in the retail segment, the Hungarian Rossi Biofuel in the biofuels area and Unimot – in the logistics.
The final decision of the shareholders will also be needed for the process to succeed. The following corporate actions of Grupa Lotos S.A. are required in order to implement the remedial measures:
- according to the Articles of Association of Grupa LOTOS S.A., a sale or lease of the Company’s enterprise or its organized part, whose activities include the production and processing and sale of refined petroleum products, requires a resolution adopted by 4/5 majority of votes at the General Meeting, with at least half of the Company’s share capital represented at the General Meeting,
- a divestment by Grupa LOTOS S.A. must be approved by the Supervisory Board, which approves any divestment of assets with a market value exceeding 0.1% of the Company’s total assets and the conclusion of any material transactions, and communicates its opinion on the matter to the General Meeting,
- in the case of a divestment of shares held by Grupa LOTOS S.A. in other companies with the market value exceeding PLN 100 million or 10% of Grupa LOTOS’s total assets, approval of the General Meeting of Grupa LOTOS S.A. issued with an absolute majority of votes is required,
- activities performed at the level of subsidiaries of Grupa LOTOS S.A. may require corporate approvals granted by the corporate bodies of those companies.
These activities will be subject to detailed analysis and will be implemented in accordance with the law, depending on the final structure of transactions.
During the ongoing acquisition process, i.e. the preparation for the implementation of the remedial measures, Grupa LOTOS S.A. creates value for shareholders by continuing its ordinary operating activity and maintaining its independence and competitiveness vis-à-vis other market entities.
