Poland surprised the markets yesterday with plans to merge its biggest oil and gas firms to forge central Europe’s No 1 energy company and prevent any hostile takeover threat.
Treasury minister Dawid Jackiewicz is considering tie-ups between the state-run oil refiners PKN Orlen and Lotos, and gas firm PGNiG, with the analysis to be ready by the end of this quarter.
Put together their joint market value would stand at 60bn zlotys ($15bn), almost twice as much as Austria’s OMV and three times the market cap of Hungary’s MOL.
“I have started works on this concept to find out what positive effects one could expect,” Jackiewicz said. “This is about strengthening our position in these companies in order to prevent attempts of hostile takeovers.”
Poland controls PKN via a 27.5% stake, holds 53.2% in PKN’s smaller rival Lotos and 72% of PGNiG. Jackiewicz said that the treasury would consider more than one merger option between the three.
The government, formed by last-year’s election winner — the conservative Law and Justice (PiS) party, considered merging PKN and Lotos already in 2007, fearing the groups, which mostly refine Russian oil, could be targeted by a Russian rival.
PKN’s newly appointed chief executive, Wojciech Jasinski, was the treasury minister in PiS’ previous government in 2006-2007, working on the merger that did not happen.
The market worries that such a move now would add to a campaign to seize more control over the economy by Poland’s ruling conservatives after the government already ousted several top executives of state-owned companies, including PKN.
“This is another signal for the investors that the government is entering the strategic sector. Investors want to make money and the state has different, not necessarily market-related aims,” Radoslaw Lipinski, analyst at Pekao Investment Banking said.
Jackiewicz added that the treasury has doubts about the multi-billion investment by the also state-run KGHM — Europe’s No 2 copper producer — in Chilean mines.
KGHM’s key foreign asset is the Chilean Sierra Gorda mine, co-owned with Japan’s Sumitomo. It holds 5.5mn tonnes of copper deposits, coupled with molybdenum, and launched commercially last year.
KGHM gained control of Sierra Gorda in 2011 when it bought Canadian rival Quadra FNX for C$2.87bn ($2.04bn), the largest ever foreign acquisition by a Polish company.
Since then Chinese demand worries weighed on copper, used by power and construction industries, while swelling oil stocks have hit molybdenum, used in refining and steel production.
KGHM is now worth around half of its market cap at the end of 2011. According to Jackiewicz, the miner should diversify its operations, possibly into the energy sector to be less exposed to copper price falls.
Poland’s biggest bank PKO BP and insurer PZU , both state-controlled, should in turn invest in Poland’s troubled coal mining firm Kompania Weglowa, which is now looking for investors, the minister said.

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