Photo: PGNiG.

Source: PGNiG press release

On July 29th 2022, the Management Boards of PGNiG SA and PKN ORLEN SA agreed on a plan of merger of the two companies and on the exchange ratio at which PGNiG shares will be swapped for PKN ORLEN shares. The merger plan will be implemented once relevant decisions are passed by the General Meetings of the two companies.

“Building a large, strong multi-utility group is a landmark business project that will stimulate further economic growth and help enhance Poland’s energy security. When PKN ORLEN and the LOTOS Group join forces, it will be easier for us to achieve the energy transition that Poland and all the other countries in Europe simply must undergo. In order to secure a strong position on international markets and ensure Poland’s energy security for many years to come, we need to build a company capable of successfully competing in global markets,” said Iwona Waksmundzka-Olejniczak, President of the Management Board of PGNiG SA.

“We have demonstrated our ability to effectively deliver projects that help to strengthen the Polish energy sector, build its resilience to market shocks and strengthen its independence from raw material suppliers. This approach will not change. Building strong corporate groups with diversified, complementary business lines is not only an international standard, but also a necessity considering the challenges posed by the energy transition and Poland’s economic growth prospects. Hence the importance of skillful strategic execution. Our key strategic goals focus on investments in zero- and low-carbon energy sources and the related modernisation of the energy sector in Poland and the rest of the region. Leveraging the strengths of both companies, we will deploy the resources necessary to invest in further promising business areas. In this way we build lasting value for our shareholders, customers and local communities,” stressed Daniel Obajtek, President of the Management Board of PKN ORLEN.

Merger through acquisition

Announced on July 29th, the merger plan provides for a ‘merger through acquisition’ to be carried out pursuant to Art. 492.1.1 of the Commercial Companies Code, by transferring all of PGNiG’s assets to PKN ORLEN in exchange for shares granted by PKN ORLEN to PGNiG shareholders. The merger shares issued to existing PGNiG shareholders will increase PKN ORLEN’s share capital.

The merger plan specifies the share exchange ratio: in exchange for their holdings PGNiG shareholders will receive new PKN ORLEN shares at a ratio of 0.0925 to 1, meaning that for each PGNiG share shareholders will receive 0.0925 PKN ORLEN share. The number of allocated shares will be a natural number, with PGNiG shareholders to receive payments for any unallocated fractions of merger shares, which will be retained by the new group. The payments will be made on the terms stipulated in the merger plan.

Growth synergies

The PGNiG-PKN ORLEN merger will be pivotal for growth of the fuel and energy industry and will strengthen Poland’s energy security. Also, it will increase investment opportunities and improve the negotiating power of the combined group, further enhancing the security of raw material supplies for Poland.

‘”he operations of PKN ORLEN, the LOTOS Group and the PGNiG Group are complementary in many areas. We have a broad portfolio of exploration and production licences, we invest in alternative energy sources, and we are growing the heating business. We own an extensive distribution network and storage facilities for natural gas. By combining the experience and capital of the two companies, we will significantly expand the offering for our customers, both businesses and households. As one company, we also gain an entirely new negotiating position, both in raw material procurement and entry into international fuel and energy trading markets. The merger also offers new opportunities for professional development in a Group that enjoys a strong international presence. With their experience and knowledge, PGNiG employees will support the development of competence centres, particularly in hydrocarbon exploration and production, gas distribution and storage, as well as heat and electricity generation,” said Iwona Waksmundzka-Olejniczak.

The merger is a step towards creating a significant player on the Polish and European markets, with the experience, competences and, above all, capital needed to carry out ambitious investment, research and growth projects. In addition, the merger will help streamline achieving climate neutrality, which requires close coordination of efforts taken by companies operating in various sectors of the energy market. The purpose of the merger is to produce synergies and, above all, strengthen their existing business areas.

Gas competence centres

PGNiG employees will be fully involved in building the value of the new Group. They will harness their experience and knowledge to support the development of competence centres, particularly in hydrocarbon exploration and production, gas distribution and storage, as well as heat and electricity generation.

PGNiG’s long-standing experience in hydrocarbon exploration and production in Poland and abroad, the related competence and its professional team of specialists, combined with the upstream companies of Grupa LOTOS and PKN ORLEN, will open up growth opportunities for the multi-utility group, and ultimately improve Poland’s energy security.

PGNiG’s competences in gas distribution and storage play an important role here. The PGNiG Group has the largest distribution network in Europe, with the length of over 190,000 kilometres. It is also the only group that operates underground storage infrastructure for natural gas. With such unique resources, it is not only possible to develop the natural gas market in Poland, but also to implement hydrogen and biomethane projects by a multi-utility group.

PGNiG’s strong position as an electricity and heat producer will vitally contribute to the development and diversification of the new entity. PGNiG has extensive experience in operating generation units and distributing district heat. It operates EU’s largest heating network (located in Warsaw) and is Poland’s second largest district heat producer. This experience will be valuable in strengthening the multi-utility group’s position in the heating sector.

In dialogue with employees

It is a priority that employees have constant access to coherent and reliable information during the merger process. Both PGNiG S.A. and the PGNiG Group release regular announcements about the progress in building the multi-utility group. Information meetings are also organised, with active participation from the Company’s Management Board members. The employees are and will be kept informed on every step towards building a multi-utility group in accordance with the promise of “nothing about you without you”.

At the same time, representatives of the trade unions and the employee council are also able to influence the provisions of the tripartite transfer agreement which is being negotiated, concerning a guarantee of employment and a guarantee of maintaining the existing employment terms. Talks between PGNiG S.A., PKN ORLEN and the social partners at PGNiG S.A. are already at an advanced stage. Employees are and will continue to be kept informed about the outcomes of regular meetings and negotiations.