PGE Polska Grupa Energetyczna : Group gets green light to acquire EDF Polska

With the acquisition of EDF Polska's assets, PGE Polska Grupa Energetyczna is set to reinforce its top position on the Polish power market and become the largest supplier of eco-friendly district heating. The transaction will take place on the condition that most of electricity produced by the acquired company is sold on a power exchange.

'The approval given by the president of the Office of Competition and Consumer Protection is a milestone on the way to quickly closing the strategic transaction to acquire EDF's Polish assets. This purchase is beneficial for PGE Group as well as its existing and future clients. By increasing liquidity on the power exchange, it will also have a positive impact on energy market competitiveness,' said Henryk Baranowski, CEO of PGE Polska Grupa Energetyczna.

'PGE Group is the undisputed leader in electricity generation, and the acquisition of eight CHP plants will also place us first on the district heating market. Work on a growth strategy for the regulated district heating segment, based on the assets being acquired, has entered its final stage. Our idea for this business will be unveiled once the acquisition of EDF Polska is finalised, by the end of this year,' added Henryk Baranowski.

In line with the UOKiK's condition, PGE Group will have to sell all electricity produced at Elektrownia Rybnik in 2018-2021 on the power exchange. This volume may be decreased only if PGE Group's entire energy sale commitment increases or if the plant in Rybnik changes owners.

The transaction will be finalised once the fourth and final condition precedent from the agreement signed on 19 May 2017 is met. To this end, PGE will need to obtain a waiver of pre-emption rights from the National Support Centre for Agriculture. The other three conditions are already met. Relevant approvals have been given by the UOKiK, the Minister of Energy and the government of France, which oversees state-controlled companies and transactions involving their shares.

Additional 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 installed heating capacities from 3.55 GWt to 7.57 GWt, i.e. by more than 100%. If the production level reported for 2016 is maintained, this would increase the Group's heating output by over 150%. The combined installed capacities of PGE and EDF will lead to PGE Group having the largest share of the district heating market (15%). Installed electricity capacities will increase by 25% to 15.95 GWe.

The transaction to acquire EDF's assets is worth PLN 4.51 billion, which includes PLN 2.45 billion for equity and approx. PLN 2.06 billion for net debt, which is EDF's intra-group debt (liabilities of EDF's Polish companies towards their French owner).

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 4.5 billion price for this business is in line with market standards, and PGE sees it as favourable.

On 11 May 2017, PGE Group submitted an individual offer to purchase EDF's assets in Poland, with a view towards full operational control and full consolidation of companies. On 19 May, the Group signed a purchase agreement that finalised the several-months-long transaction.

Acquired assets by the numbers

• Installed electric capacity: 3.3 GW*
• Installed heating capacity: 4.4 GW*
• Annual electricity output: 12.4 TWh
• Annual heating output: 32.8 PJ
• District heating network: approx. 390 km
• 4 CHP plants (Gdynia, Gdańsk, Kraków, Toruń)
• District heating network in Toruń
• Power plant in Rybnik
• Kogeneracja SA: 4 CHP plants (Wrocław, Zielona Góra, Zawidawie, Czechnica) and3 district heating networks (Zielona Góra, Siechnice, Zawidawie)

* Together with a gas-fired power unit at Elektrociepłownia Toruń, put into service in 2017.