Further to Current Reports No. 21/2020, No. 10/2021, No. 40/2021 and No. 41/2021, Grupa LOTOS S.A. (the “Company”) announces completion of the work on the implementation of the remedies defined in the decision of the European Commission (the “Commission”), dated July 14th 2020, to conditionally approve the intended concentration involving acquisition of control of the Company by Polski Koncern Naftowy ORLEN S.A. (“PKN ORLEN”), issued pursuant to Article 8(2), second subparagraph, of Council Regulation (EC) No 139/2004 of January 20th 2004 on the control of concentrations between undertakings (the Merger Regulation) (OJ L 24, p. 1) (the “Remedies”).
The Remedies included structural and behavioural commitments relating to the structure and policies of the undertakings involved in the concentration: the Company and PKN Orlen. With a view to implementing those Remedies, the conditional agreements listed below were concluded, which will take effect subject to the following conditions:
a) the Commission approves those agreements and the buyers of the assets to be sold as part of implementation of the Remedies;
b) concentration between PKN ORLEN and the Company is completed;
c) the buyers (listed below) of the assets to be sold as part of implementation of the Remedies obtain anti-trust and other administrative clearance for concluding those agreements; and
d) other competent authorities’ approvals required by law for the disposal of rights to certain components of the divested assets are obtained.
Grupa LOTOS S.A. announces that the following agreements have been concluded with respect to fuel production and wholesale operations to implement the Remedies:
a) a preliminary share purchase agreement for 30% of shares in LOTOS Asfalt sp. z o.o. of Gdańsk (“LOTOS Asfalt”) (the “LOTOS Asfalt Preliminary Share Purchase Agreement”) between the Company and Aramco Overseas Company B.V. (“Aramco”), together with a schedule containing forms of agreements that will be executed on the day of the transaction closing under the LOTOS Asfalt Preliminary Share Purchase Agreement:
i. a joint venture agreement between the Company, PKN ORLEN, Aramco and LOTOS Asfalt, to be signed to fulfil the commitment to sell to an independent third party a 30% equity interest in the company to which the refinery located in Gdańsk (the “Refinery”) was transferred as a contribution in kind, and to guarantee to that third party corporate governance rights under a contract;
ii. processing and offtake agreements between the Company, the Wholesale Company (as defined below) and LOTOS Asfalt, to be signed to fulfil the commitment to enter into agreements with the party referred to in item a) for the production and offtake of the Gdańsk refinery’s products, including sale of fuels;
iii. a framework agreement for the maintenance of mandatory stocks between PKN ORLEN and the Wholesale Company (as defined below);
iv. a framework outsourcing agreement for rail logistics for transporting fuel between PKN ORLEN and the Wholesale Company (as defined below).
The LOTOS Asfalt Preliminary Share Purchase Agreement stipulates that the conclusion of the final share purchase agreement will be conditional upon, among other things, the transfer by LOTOS Asfalt to another entity of its operations which are not related to the operation of the processing Refinery, including:
- an organised part of the enterprise currently operated by LOTOS Asfalt, comprising LOTOS Asfalt’s employees (including the bitumen sales team) and all components of the enterprise necessary to conduct business at the production plants located in Czechowice-Dziedzice and Jasło (the “Bitumen Business”);
- the marine fuel production operations;
- the R&D operations; and
- the operations relating to the construction of a large-scale unit for the production of green hydrogen under the Green H2 project.
The price under the LOTOS Asfalt Preliminary Share Purchase Agreement will be calculated based on the formuladefined in the LOTOS Asfalt Preliminary Share Purchase Agreement, comprising a fixed component of PLN 1,149,632,000 (one billion one hundred forty nine million six hundred thirty two thousand zlotys) and a variable component that will increase or decrease the fixed component depending on the amount of LOTOS Asfalt’s debt and working capital on the day preceding the execution of the final agreement.
The LOTOS Asfalt Preliminary Share Purchase Agreement contains a catalogue of representations and warranties made by the Company with respect to the shares being sold and LOTOS Asfalt’s business standing and condition within its refining operations. Furthermore, the LOTOS Asfalt Preliminary Share Purchase Agreement provides for indemnity for Aramco against any losses resulting from specific risks set out in the LOTOS Asfalt Preliminary Share Purchase Agreement. The Company’s aggregate liability under the LOTOS Asfalt Preliminary Share Purchase Agreement will not exceed the purchase price actually paid by Aramco to the Company.
The LOTOS Asfalt Preliminary Share Purchase Agreement stipulates that LOTOS Asfalt and entities of the Company’s Group will conclude service level agreements under which the latter will agree to provide certain services to LOTOS Asfalt on an arm’s-length basis.
The LOTOS Asfalt Preliminary Share Purchase Agreement contains a material adverse change clause, giving Aramco the right to terminate the LOTOS Asfalt Preliminary Share Purchase Agreement if specific events, precisely defined therein, occur.
At the same time, the Company announces that, as regards the conclusion of the LOTOS Asfalt Preliminary Share Purchase Agreement, this current report constitutes the public disclosure of inside information which was delayed on January 11th 2022 in accordance with Article 17(4) of MAR.
b) a preliminary share purchase agreement for 100% of shares in LOTOS SPV 1 sp. z o.o. of Gdańsk (the “Wholesale Company”) (the “Wholesale Company Preliminary Share Purchase Agreement”), to which an organised part of the enterprise currently operated by LOTOS Paliwa sp. z o.o. of Gdańsk (“LOTOS Paliwa”) comprising the fuel wholesale business (the “Wholesale Business”) will be spun off prior to the execution of the final share purchase agreement, between the Company and Aramco;
The Wholesale Company Preliminary Share Purchase Agreement stipulates that the conclusion of the final share purchase agreement will be conditional upon, among other things, the transfer of the Wholesale Business to the Wholesale Company by LOTOS Paliwa and establishment of the processing function at the Wholesale Company (which will include in particular obtaining the required administrative decisions).
The price under the Wholesale Company Preliminary Share Purchase Agreement will be calculated based on the formuladefined in the Wholesale Company Preliminary Share Purchase Agreement, comprising a fixed component of PLN 1,048,432,000 (one billion forty eight million four hundred thirty two thousand zlotys) and a variable component that will increase or decrease the fixed component depending on the amount of Wholesale Company’s debt and working capital on the day preceding the execution of the final agreement.
The Wholesale Company Preliminary Share Purchase Agreement contains a catalogue of representations and warranties made by the Company with respect to the shares being sold and in relation to the business standing and condition of the Wholesale Business. Furthermore, the Wholesale Company Preliminary Share Purchase Agreement provides for indemnity for Aramco against any losses resulting from specific risks set out in the Wholesale Company Preliminary Share Purchase Agreement. The Company’s aggregate liability under the Wholesale Company Preliminary Share Purchase Agreement will not exceed the purchase price actually paid by Aramco to the Company.
The Wholesale Company Preliminary Share Purchase Agreement stipulates that the Wholesale Company and entities of the Company’s Group will conclude service level agreements under which the latter will agree to provide certain services to the Wholesale Company on an arm’s-length basis.
The Wholesale Company Preliminary Share Purchase Agreement contains a material adverse change clause, giving Aramco the right to terminate the Wholesale Company Preliminary Share Purchase Agreement if specific events, precisely defined therein, occur.
At the same time, the Company announces that, as regards the conclusion of the Wholesale Company Preliminary Share Purchase Agreement, this current report constitutes the public disclosure of inside information which was delayed on January 11th 2022 in accordance with Article 17(4) of MAR.
The following agreements have been concluded with respect to fuel logistics:
a) a preliminary share purchase agreement for 100% of shares in LOTOS Terminale S.A. of Czechowice-Dziedzice (“LOTOS Terminale”) between the Company and Unimot Investments spółka z ograniczoną odpowiedzialnością (“Unimot Investments”), together with a schedule in the form of the in-kind contribution agreement providing for the contribution of four fuel depots of PKN ORLEN located in Gdańsk, Szczecin, Gutkowo and Bolesławiec to LOTOS Terminale. The in-kind contribution agreement will be concluded between PKN ORLEN and LOTOS Terminale after PKN ORLEN has acquired control of Grupa LOTOS;
b) a conditional fuel storage agreement between PKN ORLEN and Unimot Investments, enabling PKN ORLEN to use storage capacities in fuel depots located in Gdańsk, Szczecin, Gutkowo and Bolesławiec after disposal of LOTOS Terminale shares to Unimot Investments;
c) a conditional preliminary agreement on lease and reimbursement of outlays between PKN ORLEN and Unimot Investments and Unimot S.A., providing for the obligation of PKN ORLEN, Unimot Investments and Unimot S.A. to enter into a final agreement specifying the terms of delivery of a project to construct aviation fuel storage and transport infrastructure on the premises of the fuel depot being divested in Szczecin as part of implementation of the Commitments, to be owned and operated by LOTOS Terminale.
The following agreements have been concluded with respect to retail operations:
a) a preliminary share purchase agreement for shares in LOTOS Paliwa (the “LOTOS Paliwa Preliminary Share Purchase Agreement”), from which The Wholesale Business will be spun off prior to the execution of the final share purchase agreement, between the Company and MOL Hungarian Oil and Gas Public Limited Company, signed to fulfil the commitment to sell 100% of shares in LOTOS Paliwa to an entity operating on the Polish fuel retail market, including the following portfolio of service stations of the LOTOS retail chain located in Poland:
- 412 existing service stations (265 CODO and 147 DOFO locations), including 29 service stations operating within Motorway Service Areas, and
- lease contracts for 5 new service stations at Motorway Service Areas;
- the rights and obligations under agreements concluded with the holders of fuel cards issued by LOTOS Paliwa (the “Divestment Retail Business”).
The LOTOS Paliwa Preliminary Share Purchase Agreement stipulates that the conclusion of the final sale agreement will be conditional upon, among other things,the transfer by LOTOS Paliwa of:
- the Wholesale Business to the Wholesale Company;
- the retail operations of LOTOS Paliwa falling outside the scope of the Divestment Retail Business to another entity of the Company’s Group.
The price under the LOTOS Paliwa Preliminary Share Purchase Agreement will be calculated based on the formuladefined in the LOTOS Paliwa Preliminary Share Purchase Agreement, comprising a fixed component of USD 609,751,791 (six hundred nine million seven hundred fifty one thousand seven hundred ninety one dollars) and a variable component that will increase or decrease the fixed component depending on the amount of LOTOS Paliwa’s debt and working capital on the last day of the month preceding the month in which the final agreement is executed. The Preliminary Share Purchase Agreement contains a material adverse change clause, pursuant to which the occurrence of specific events, precisely defined therein, will trigger a reduction in the price of LOTOS Paliwa shares based on an agreed formula.
The LOTOS Paliwa Preliminary Share Purchase Agreement contains a catalogue of representations and warranties made by the Company with respect to the shares being sold and in relation to LOTOS Paliwa’s business standing and condition within the Divestment Retail Business. Furthermore, the LOTOS Paliwa Preliminary Share Purchase Agreement provides for indemnity for MOL Hungarian Oil and Gas Public Limited Company against any losses resulting from specific risks set out in the LOTOS Paliwa Preliminary Share Purchase Agreement. The Company’s aggregate liability under the LOTOS Paliwa Preliminary Share Purchase Agreement will not exceed the purchase price actually paid by MOL Hungarian Oil and Gas Public Limited Company to the Company.
The LOTOS Paliwa Preliminary Share Purchase Agreement stipulates that on the day of the transaction closing under its provisions LOTOS Paliwa and entities of the Company’s Group will conclude (i) transitional services agreements, (ii) service level agreements under which the latter will agree to provide certain services to LOTOS Paliwa on an arm’s-length basis, and (iii) a conditional trademark licensing agreement between the Company and MOL Hungarian Oil and Gas Public Limited Company, to be signed to fulfil the commitment to grant the purchaser of the service stations a licence to use the Company’s trademarks (including Lotos, Navigator, Dynamic, etc.) for a specified period necessary to rebrand the service stations.
The following agreements have been concluded with respect to aviation fuel:
a) a preliminary share purchase agreement for 50% of shares in LOTOS-Air BP Polska sp. z o.o. of Gdańsk (“LOTOS-Air BP”) between the Company and Aramco;
b) a conditional agreement for sale of aviation fuel between PKN Orlen and LOTOS-Air BP, signed to fulfil the commitment to guarantee LOTOS-Air BP sales of aviation fuel;
c) a conditional agreement for storage of aviation fuel at the Olszanica fuel terminal between PKN ORLEN and LOTOS-Air BP, signed to fulfil the commitment to guarantee LOTOS-Air BP access to storage capacities of the terminal located in Olszanica, owned and operated by PKN ORLEN;
d) a conditional support agreement between PKN ORLEN, ORLEN Aviation sp. z o.o. and LOTOS-Air BP, signed to fulfil the commitment for PKN ORLEN to support the operating activities of LOTOS-Air BP in case of any force majeure events if such events affect LOTOS-Air BP’s operating capabilities at the Warsaw Chopin Airport
The following agreements have been concluded with respect to bitumen:
a) a preliminary share purchase agreement for 100% of shares in LOTOS Terminale, which, prior to the execution of the final share sale agreement, will acquire 100% of shares in LOTOS SPV 2 sp z o.o. (the “Bitumen Company”), between the Company and Unimot Investments. Prior to that, the Bitumen Business will be spun off to the Bitumen Company. The agreement will be signed to fulfil the commitment as part of the Remedies to divest the part of LOTOS Asfalt's enterprise comprising the Bitumen Business, or, alternatively, to conclude a contract for the lease of that part of the enterprise by an independent third party for a specified period;
b) a conditional bitumen sale agreement between the Company and Unimot Investments.
The following agreement has been concluded with respect to biofuels:
a) a preliminary share purchase agreement for 100% of shares in LOTOS Biopaliwa sp. z o.o. of Gdańsk (“LOTOS Biopaliwa”) between the Company and Rossi Biofuel Zrt., signed to fulfil the commitment to divest all shares held by the Company in Lotos Biopaliwa.
Both the purchasers in the transactions made to implement the Remedies and the terms and conditions of the agreements listed above will be subject to the Commission’s approval as a result of the application filed by PKN Orlen.
In the Company’s opinion, at the time when the decision to delay disclosure of inside information on the conclusion of the LOTOS Asfalt Preliminary Share Purchase Agreement and the Wholesale Company Preliminary Share Purchase Agreement was made, it met the conditions set out in MAR and in the European Securities and Markets Authority’s Guidelines on delayed disclosure of inside information of October 20th 2016.
In the circumstances described above, immediate disclosure of information on the conclusion of the agreements was likely – in the Company’s opinion – to prejudice the legitimate interests of both the Company and its Group through a possible adverse effect on the implementation of the Remedies as a whole. The Company believes that disclosure of information on the conclusion of the LOTOS Asfalt Preliminary Share Purchase Agreement and the Wholesale Company Preliminary Share Purchase Agreement could have affected the negotiations with the parties to the other agreements listed in this report.
Moreover, in the Company’s opinion, public disclosure of information on the conclusion of the LOTOS Asfalt Preliminary Share Purchase Agreement and the Wholesale Company Preliminary Share Purchase Agreement prior to the completion of work aimed at implementing the Remedies could result in the public making an incorrect assessment of this information and its potential impact on the Company’s value. The Company believes that there was nothing to indicate that the delayed disclosure of such inside information was likely to mislead the public. According to the Company, the confidentiality of the inside information was ensured in particular through the use of measures to protect the information and control its flow, implemented at the Company’s Group.
Legal basis: Article 17(1) and Article 17(4) of Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16th 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC.