CONCERNS ABOUT FUEL&ENERGY CONCERNS 2/3

On the contrary to the forced acquisition of Brzeszcze by Tauron, Enea’s decision of creating a fuel&energy group by taking over private-owned LW Bogdanka was fully independent from the government’s pressures. Fourth largest power producer in Poland (after PGE, Tauron and EDF) bought a week ago 21,962,189 shares of third largest Polish coal producer for 1.48 billion PLN, and with the 486,645 shares already owned Enea now has 66% of shares in LWB’s capital.

The whole acquisition process started in nasty atmosphere, when on 21st August Enea terminated long-term contract for coal deliveries from the LZW-based producer. Bogdanka’s stocks fell, which soon led to many speculations on what are Enea’s true intentions. Some were convinced, that energy group was just trying to get a better position in the negotiation game, others said, that this might be a prologue of merging with Katowicki Holding Węglowy. When on the 14th September Enea announced its will to take over the vast majority of LWB’s shares for 67.39 PLN per stock (actual stocks managed to go back to a level of 50 PLN at the time), many again thought that this was just a game. Some experts recalled previous unsuccessful efforts by NWR in taking over Bogdanka for 100.75 PLN and were confident that this call will be a failure as well. Other commentators foresaw possibilities of this transaction, even if would be followed by acquisition of KHW, since there were rumors of Enea’s merger with Energa (with its increased demand for coal after building a new coal-fired 1000 MW energy block in the next few years).

LWB’s Management kept calm and hired auditors and consultants to evaluate the offer. Meanwhile, the main stockholders – pensions funds (with the largest share: Aviva, Nationale Nederlanden and PZU) were pulling some tricks (e.g. trying to limit the votes for new shareholders to a max. level of 10%) to bump up the price and force Enea to buy all their stocks (which could in the end cost 2.3-2.5 billion PLN). When KPMG announced that the bid is fair enough, the situation became more tense. Bogdanka’s managers knew, that if they would resist the offer, soon enough Enea might be forced to invest in Silesian coal producers, which would not only cause in losing the investor, but also a key client.

Now it’s official – after 10 years from privatization still profitable LW Bogdanka is taken over by state-owned Enea. Not going further into discussion if renationalization is a good practice for a company in such good condition as LWB, there are some other issues that might give Enea’s managers sleepless nights. First of all, both companies are listed on the Warsaw Stock Exchange, which means that Bogdanka would have to sell its coal to the parent company at market prices (which puts into question the whole synergy-based strategy of Krzysztof Zamasz, Enea’s CEO), to avoid prosecution for illegal cross-subsidization. Soon enough Enea will have take LWB from WSE or start thinking about cutting costs. Since Bogdanka already tighten its belt this year, the cuts will be very sharp and violent.

Another thing is connected with the coal itself. Even with the heat&power plants in Białystok (which cannot use coal from LZW with its high sulphur content) and new energy blocks, Enea is not able to use the full potential of its new child, so nolens volens some of the coal will have to be sold to the competitors on the Polish market (with its low quality, LWB’s product is not suitable for export, regardless some rumors about selling it to Ukraine). Reducing volumes of production would be followed by further getting rid of employees and equipment, which was adjusted to annual production at a level of 11 million tons.

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