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Polish refiner PKN Orlen announces Energa takeover bid

Poland's largest refiner Polski Koncern Naftowy ORLEN SA, or PKN Orlen, announced plans on Dec. 5 to take over state-controlled utility Energa SA and strengthen its position in the electricity market.

"We will be selling not only fuels but also electricity, strengthening the group on the whole market," PKN CEO Daniel Obajtek told a news conference. He said PKN had notified the European Commission about the takeover, and expected it to be completed by mid-2020.

PKN said the tender offer would be made once it has approval for the merger from the European Commission. The Polish state holds a 27.52% controlling stake in PKN and 51.52% in Gdansk-based Energa.

PKN said in a market filing that it will offer 7 zlotys per Energa share, valuing the company at 2.9 billion zlotys, considerably lower than Energa's market capitalization at its height in 2015, of 11.5 billion zlotys.

PKN, which has a market capitalization of 37 billion zlotys, said the subscription period for the sale of shares under the tender offer would start Jan. 31 and end April 9, 2020.

Distributor with some generation

Most of Energa's assets relate to its electricity distribution business, which has a regulated asset base of around 13 billion zlotys.

"We estimate Energa should derive 70% of FY19-21 EBITDA from electricity distribution and 20% from electricity generation, with one-third of its power generation from renewables (hydro, wind)," said Bartlomiej Kubicki of investment bank Societe Generale in a note on Dec. 6.

"Given the small premium PKN Orlen is offering, we think there is little chance it will get 100% [of Energa]," Kubicki said, although the analyst noted it was not known whether PKN Orlen had pre-agreed a deal with the Polish state.

Investment promised

PKN CEO Obajtek said Energa did not have the right fuel mix, was short of power and required investment. While it had sufficient volumes of renewable energy, it did not have enough generation capacity generally to cover its needs and was forced to buy from the market, he said.

"We will invest in it. We have money for investments. Will Energa be able to afford more investments, even in gas plants or a hydro plant in Siarzewo?" he said.

The move is another step in PKN's plan to build a large fuel and energy group. PKN also plans to take over its smaller rival refiner, the Gdansk-based Grupa LOTOS SA. The deal is still waiting for regulatory approval from the European Commission.

Following construction of two large combined-cycle gas turbine plants in Wloclawek and Plock, PKN is now the largest electricity generator in Poland's gas-fired CHP sector, with annual generation of 8 TWh, compared to Energa's 3.6 TWh. Energa has plans to build CCGTs in Grudziadz and Gdansk.

Offshore wind partner

Separately, PKN said it plans to select an experienced partner to build 1.2 GW of offshore wind farms in the Baltic Sea before the end of the year, although the company said it was not in a rush and the talks may be prolonged until next year. PKN is planning to commission its first offshore wind capacity in 2023.

As of Dec. 9, US$1 was equivalent to 3.87 Polish zlotys.

Henry Edwardes-Evans and Adam Easton, who contributed to this article, are reporters with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.