Poland's PKN signals intent to buy state gas company PGNiG

Warsaw — Poland's largest refiner PKN Orlen signed a letter of intent July 14 with the treasury to acquire the state natural gas company PGNiG.

State-controlled PKN said the planned takeover was the next step in building a strong, multi-energy group, following its acquisition of state power company Energa.

On July 14, the European Commission also approved PKN's acquisition of its smaller rival refiner, the Gdansk-based Grupa Lotos, on condition PKN sells several assets.

"We begin the process of PKN Orlen's acquisition of PGNiG. We are building a powerful global multi-energy group in Poland. The consolidation of state-owned companies is our response to the increasingly demanding environment," state assets minister, Jacek Sasin, said following the signing.

"A larger PKN Orlen is a key company. Capital strength is needed to carry out this process. Through this type of merger it's possible to generate revenue and cost synergies. This is a breakthrough process that will increase the efficiency of PGNiG and PKN Orlen," Poland's prime minister Mateusz Morawiecki said.

Once PKN Orlen has completed the acquisition of Energa, Lotos and PGNiG, it would be able to generate annual earnings before EBITDA of Zloty 20 billion ($5.09 billion) and employ more than 60,000 people, Morawiecki said.

PKN's CEO Daniel Obajtek said buying state power and gas companies is attractive because Polish household electricity and gas prices are regulated.

"The refining business is cyclical because it largely depends on the macroeconomic environment, which is subject to large fluctuations. To invest and think about long-term development you need to have a stable and diversified income. That is why we are building one strong multi-energy group, which will also be based on the regulated energy and gas business," Obajtek said.

Lengthy process

PKN said it had yet to decide the model and schedule for the acquisition. The state treasury owns 71.88% of PGNiG. The acquisition of PGNiG would require approval by the European Commission and Poland's antitrust authorities and would likely be a lengthy process, Michal Kozak, an analyst for Trigon DM said.

"It seems that the acquisition of PGNiG will not be a quick process. Firstly, due to the security of Orlen's balance sheet and uncertainty about macroeconomic conditions. As for the manner of the transaction, I would not rule out a tender offer, which would benefit the treasury. It is certainly negative for Orlen in that it is taking on a very heavy burden as the consolidator," he said.

PKN said signing the letter of intent is not a binding commitment to carry out the acquisition.