Major milestone towards PKN Orlen&Grupa LOTOS merger achieved with support from SMM Legal

On 12 January 2022, in performance of its commitments to the European Commission, PKN ORLEN presented the counterparties and the manner of implementation of remedies required for the transaction to be finally cleared. This is a major step for the entire merger process. For more than a year and a half, the legal aspects of this project have been handled by Prof. Maciej Mataczyński and a team of more than a dozen SMM Legal lawyers.

In its decision of 14 July 2020, the European Commission granted its conditional approval for concentration between PKN ORLEN and Grupa LOTOS S.A. For the transaction to proceed, PKN ORLEN S.A. must sell some of its assets to third parties (buyers). The Commission also defined certain additional commitments that must be met to ensure that the competition in the six markets relevant for the merger will remain intact.

‘These commitments are met through preliminary share purchase agreements (SPAs) signed with the buyers and by negotiating terms and conditions of other contracts (commercial agreements)’, explains Prof. Maciej Mataczyński, Managing Partner at our Firm. ‘This is the stage we are currently at. Now, within one week from concluding the SPAs, PKN ORLEN S.A. must request the Commission to approve the buyers of each of the divestment packages as well as the terms and conditions of the agreements themselves’, adds Prof. Mataczyński.

The process so far

Once the European Commission has granted its conditional approval for the merger, SMM Legal lawyers first assisted the client in developing the concept of implementation of the remedies. The works involved drafting, analysis and verification of conditional agreements and, most importantly, commercial agreements with third parties. With respect to divestment agreements concluded by Grupa LOTOS S.A., the leading advisor was Rymarz Zdort law firm.

Such agreements had to meet, as far as possible, the requirements laid down by the European Commission to protect competition in six specific market areas:

  • wholesale of fuels (by selling 30% share in the Gdańsk refinery and wholesale operations of LOTOS Paliwa),
  • retail sale of fuels (by selling a package of petrol stations),
  • jet fuel (by selling the shares of Grupa LOTOS in LOTOS-AirBP),
  • fuel storage (by selling ORLEN’s and LOTOS’s fuel depots specified in the decision),
  • Biofuels (by selling LOTOS Biopaliwa),
  • and bitumen (by selling or leasing bitumen production plants owned by LOTOS).

‘The biggest legal challenge at this stage involved drafting contracts related to the refinery’, says Magdalena Cisowska, in charge of coordinating works in this field. ‘They included two particularly rare contract types – the processing agreement on the processing of crude oil into fuels and other products and the offtake agreement on the deliveries of additional fuel volumes’, explains Ms. Cisowska.

Project team

Apart from Prof. Maciej Mataczyński and Ms. Magdalena Cisowska, the third key person involved in the process has been Tomasz Jaranowski, a Partner at our Firm. On top of that, a large group of our experts have been working on the transaction, including Paweł Łącki, Izabela Jackowska, Wojciech Sikorski, Piotr Ruchała, Łukasz Dutkowski, Mateusz Stańczyk and Michał Wojtkowiak.

At the same time, given the tight schedule set out in the Commission’s decision, Prof. Maciej Mataczyński. Magdalena Cisowska and Tomasz Jaranowski have supported our client in negotiations, pending often in parallel with many partners.

In the meantime, yet another team worked on the application to the European Commission to approve the buyers. This team included Piotr Andrzejewski, Miłosz Malaga, Magdalena Cisowska, Michał Wojtkowiak, Wojciech Rzepiński, Anna Mathews and Dagmara Dragan.

 ‘In projects like this one, you are running a huge logistic operation’, concludes Tomasz Jaranowski, Partner at SMM Legal. ‘Apart from highly specialist expertise in an atypical sector and the capacity to plough through thousands of pages of documentation, the success hinges on the ability to keep the work in a large team of specialists humming despite tight deadlines’,

Throughout this period, our lawyers, apart from directly assisting our client, have worked with many stakeholders, including:

  • potential buyers (also the ones whose offers were eventually dropped) and their legal advisors,
  • advisors to Grupa LOTOS S.A. (Rymarz Zdort law firm),
  • the Monitoring Trustee in charge of monitoring the progress of compliance with the commitments for the Commission.

‘I wish to give my huge thanks to the entire team – without their commitment none of this would have been possible,’ concludes Prof. Mataczyński, in charge of the project.

What’s next?

Now the European Commission will evaluate and approve the buyers. In this process, it will examine their capacity to exert appropriate competitive pressure once PKN ORLEN S.A and Grupa LOTOS S.A. merge. The approval will be given in the form of a decision.

‘The agreements we have submitted are conditional upon the approval of the buyers by the Commission’, explains Miłosz Malaga, PhD, preparing the application for approval. ‘If the Commission refuses to clear the buyers, the acquisition of shares will not go through.

Apart from the appropriateness of the buyers, the Commission will analyse the contents of the agreements. During the procedure it may carry out detailed consultations with PKN ORLEN, Grupa LOTOS and relevant buyers.

Once the buyers are approved, PKN ORLEN and Grupa LOTOS S.A. will be clear to merge. Then, the assets covered by the divestments will be sold to buyers and the remaining agreements will come into force.

Limitations raise questions. We provide answers.