“The acquisition of EDF’s Polish assets and commencement of the process to incorporate them into PGE Group is a historic moment and a great success for us. Closing this strategic transaction will positively change the Group’s business structure, making room for significant growth in the promising segment of regulated district heating and cementing PGE’s leading position on the energy market,” said Henryk Baranowski, President of the Management Board and CEO of PGE Polska Grupa Energetyczna.

“The purchase of one of the largest Polish power plants, in the Silesian city of Rybnik alongside eight CHP plants is changing the architecture of the entire Polish energy market. I can say with satisfaction that finalising the purchase of EDF Polska is positive for both PGE Group as well as its existing and future clients,” added Henryk Baranowski.

The transaction, one of the largest on the Polish and European M&A market in recent years, was signed on 13 November 2017. The transaction encompasses the Rybnik power plant in Silesia, eight CHP plants in the largest Polish agglomerations such as the Tri-City area, Wrocław and Kraków, and nearly 400 km of district heating networks.

With the independent acquisition EDF Polska’s asset, PGE Polska Grupa Energetyczna is doubling its heating capacities to over 7.5 GWt and increasing its installed power generation capacities by 25% to nearly 16 GWe. Maintaining the level of production reported in 2016 will increase the Group’s heating output by more than 150%. By combining the installed capacities of PGE and EDF, PGE Group has solidified its leading position in the power generation segment and has become the largest supplier of eco-friendly district heating in the country, with a 15% market share.

“The acquisition of assets of this size within such a short timeframe was a very complex and challenging undertaking from an operating point of view. On behalf of PGE Group’s entire management board, I want to express my appreciation to the fully involved and professional teams on both sides of the transaction. It is thanks to their work that we were able to successfully conclude negotiations and meet all of the formal and administrative requirements, leading to a positive outcome,” added Henryk Baranowski.

In accordance with a condition imposed by the Office of Competition and Consumer Protection, in 2018-2021 PGE Group will have to sell through the power exchange a volume of electricity corresponding to the Rybnik power plant’s output. Another obligation arising from legal regulations involves PGE having to announce a tender offer (for up to 66% of share capital) for the shares of exchange-listed ZEW Kogeneracja, which is part of the acquired EDF Polska assets. ZEW Kogeneracja currently manages four CHP plants (Wrocław, Zielona Góra, Zawidawie, Czechnica) and three district heating networks. PGE is required to announce the tender offer within three months from the transaction closing.

PGE Group is the undisputed leader in electricity generation and the acquisition of eight CHP plants together with district heating network infrastructure places it first on the district heating market as well.

“We are confident that the district heating market in Poland is facing good prospects. The development of district heating is economically and environmentally the best way to improve the quality of air in about 200 Polish cities. We believe that the regulatory environment will be favourable for the development of this segment and will stimulate its further growth. This is why we worked so hard in recent months on a new strategy for development in the segment of regulated district heating and cogeneration based on the acquired assets,” said Ryszard Wasiłek, Vice-President of PGE Polska Grupa Energetyczna, in charge of operations.

“PGE Group’s District Heating Strategy, which will include a scenario for the development of the Rybnik power plant and our ambitious strategic plans for the entire segment, will be unveiled on 14 December,” announced Henryk Baranowski.

Completion of the acquisition of EDF’s assets and their inclusion in PGE’s structure are in line with the Group’s 2020 strategy, updated in September 2016. The acquired district heating assets are aligned with PGE’s business profile and will increase the contribution of stable EBITDA from regulated activities and, through a multi-directional diversification, reduce the company’s overall operational risk, thus contributing to improving Poland’s energy security.

PGE’s total expenditures related to the acquisition of EDF’s assets in Poland reached approx. PLN 4.27 billion and included the price to purchase EDF Polska shares and the direct purchase of EDF Investment III BV shares (shareholder of ZEW Kogeneracja), amounting to a total of PLN 2.54 billion (including interest), as well as approx. PLN 1.73 billion to repay intra-group debt of EDF Polska and EDF Paliwa.

Finalising the agreement to purchase EDF Polska will start a process to change its name to PGE Energia Ciepła, which will be a part of PGE Group, which comprises powerful business lines managing: the two largest mining and power generation complexes in Poland – Bełchatów and Turów, distribution networks in north-eastern and south-eastern Poland and the largest renewable energy resources in the country. PGE Group also owns young and modern businesses such as PGE Ventures and PGE Nowa Energia, both set up in 2017, operating in the areas of innovation, electromobility and startups.

White&Case M.Studniarek i Wspólnicy served as legal adviser for PGE Group on the transaction, while Bank PKO BP acted as financial adviser. DLA Piper Wiater Sp.k. and BDO Sp. z o.o. were also involved in the project, as were technical advisers Energoprojekt Warszawa and Ramboll.

PGE’s M&A team spent 15 months on the transaction, which included over 20 negotiation sessions, tens of video conferences, several hundreds of meetings and tens of thousands of emails.

 

Supplementary information:

  • Thanks to the acquisition of eight CHP plants in Gdynia, Gdańsk, Kraków, Wrocław (EC Wrocław and EC Zawidawie), Toruń, Zielona Góra and Siechnice, PGE Group is increasing its heating capacities from 3.55 GWt to 7.57 GWt, i.e. by more than 100%. Maintaining the production volume reported in 2016 would increase the Group’s heating output by over 150%. The combined installed capacities of PGE and EDF give PGE Group the largest share of the district heating market (15%). Installed power generation capacities will increase by 25% to 15.95 GWe.
  • Last year, PGE Group reported PLN 7.4 billion in EBITDA. For comparison, EDF’s assets in Poland generated PLN 1.1 billion in EBITDA. From this perspective, the price paid for the enterprise – PLN 4.27 billion – is in line with market standards, and PGE sees it as beneficial.

 

The acquired assets by the numbers

  • Installed electric capacity: 3.3 GW*
  • Installed heat capacity: 4.4 GW*
  • Annual electricity output: 12.4 TWh
  • Annual heat output: 32.8 PJ
  • District heating network: approx. 390 km
  • 4 CHP plants (Gdynia, Gdańsk, Kraków, Toruń)
  • District heating network in Toruń
  • Rybnik power plant
  • Kogeneracja SA: 4 CHP plants (Wrocław, Zielona Góra, Zawidawie, Czechnica) and 3 district heating networks (Zielona Góra, Siechnice, Zawidawie)

* Together with a gas-fired unit at the Toruń CHP plant, put into service in 2017.

 

Transaction timeline

  • August – December 2016 PGE begins preliminary work on analysing teasers, setting schedules, signing non-disclosure agreements and selecting advisers.
  • 16 September 2016 Preliminary proposal is submitted to EDF by consortium including PGE, Enea, Energa and PGNiG Termika.
  • 30 November 2016 and 3 January 2017 Updated proposals are submitted by consortium: PGE, Enea, Energa and PGNiG Termika
  • 16 January 2017 Non-disclosure agreement is signed.
  • 27 January 2017 Memorandum of understanding is signed.
  • January – April 2017 Due diligence is conducted.
  • March – May 2017 Negotiations are held concerning the content of transaction documentation (memorandum of understanding, put option agreement, conditional share sale agreement and associated agreements).
  • 11 May 2017 PGE Group submits an individual proposal to purchase EDF’s assets in Poland (put option agreement is signed), expressing interest in full operational control and full consolidation of companies.
  • 19 May 2017 PGE Group signs a conditional share sale agreement, which is finalised on 13 November 2017, after meeting all conditions precedent.
  • May – October 2017 Four conditions precedent are met.
  • 13 November 2017 Transaction closing.
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