February 27, 2018 / 11:42 AM / 4 months ago

Poland to merge its two major refiners, PKN and Lotos; shares up

WARSAW (Reuters) - Poland’s government plans to merge the country’s two biggest refiners, PKN Orlen and Grupa Lotos, in a bid to create a bigger player capable of competing on international markets, PKN said on Tuesday.

A logo of PKN Orlen, Poland's top oil refiner, is pictured at their petrol station in Warsaw, Poland October 7, 2017. REUTERS/Kacper Pempel

The decision follows a string of transactions in which state-run companies and institutions took over foreign assets sold in Poland, including banks and energy companies, amid talk of a merger between Poland’s two biggest state-run banks.

By 1332 GMT shares in PKN and Lotos had risen 5.7 percent and 7 percent respectively, as investors bet on potential synergies and cost-cutting after the merger.

“The merger has a business sense. We believe in an improvement in EBITDA of the merged entity,” said Lukasz Prokopiuk, a DM BOS analyst. He estimates the earnings before interest, taxes, depreciation and amortization of a merged PKN and Lotos would be 1 billion zlotys higher than it is now.

PKN’s EBITDA for 2017 stood at 11.2 billion zlotys. Analysts expect Lotos, which will publish 2017 results in March, to report EBITDA of around 3 billion zlotys for last year.

“As a result of the merger the company’s oil purchasing position and financial strength will also improve,” said Krzysztof Pado, an analyst at DM BDM.

Both PKN and Lotos buy most of the oil they refine from Russia but try reduce their Russian exposure by getting oil from other sources.

Some analysts said the jump in PKN shares could be related to investor hopes that the company will not join a nuclear power plant project. But the energy minister said on Tuesday the merger would not clash with its potential role in the plan.

DETAILS UNKNOWN

PKN Orlen, with market capitalization of around 40 billion zlotys ($11.83 billion), said it signed a letter of intent on Tuesday to buy from the state at least 53 percent of shares in Lotos, a company with a total market value of 10 billion zlotys as of Monday’s close.

PKN said that the transaction, which would be conducted via a public share tender or share swap, should be completed within a year. It will be subject to antimonopoly approval.

PKN owns 1,776 petrol stations in Poland, which translates into a 34 percent market share. Lotos, with 485 stations, has a 10 percent in the market.

According to the newspaper Puls Biznesu, the two refiners will need to sell around 200 stations to get antimonopoly approval.

Poland’s state-run news agency quoted the head of antimonopoly office as saying that the merger might also be subject to the opinion of the European Commission.

PKN Orlen, in which the state has a 27.5 percent stake, is one of the biggest companies listed on the Warsaw bourse. PKN has not said how it would finance the Lotos takeover. Earlier this month, it spent 3.5 billion zlotys to increase its stake in Czech Unipetrol.

Reporting by Agnieszka Barteczko and Anna Koper; editing by Larry King

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