The management board of (44 PLN, 0,70%) believes that the merger with (57 PLN, -2,71%) Orlen, which is being pushed through by politicians in the media would cost the company roughly PLN 2bn as its investment plans will be hindered. It is claimed that this is due to the fact that banks will become more reluctant to grant a loan to the company for its Complex Technological Development Program (PKRT). fears that banks might increase the cost of financing and demand additional collateral. The firm admits that its cash resources are rapidly depleting and it must obtain the external financing by the end of 2007. If the project is halted due to lack of financing, the firm would have to pay its contractors contractual fines amounting to roughly PLN 627m. Daily Parkiet reports that Lotos' management board is considering suing Orlen due to spreading rumors on the potential merger.
Our view: The meaning behind this message could be that the company has is actually having problems with getting financial sources for its PKRT project. Due to whatever reasons it might happen (world credit crunch, merger announcements) it could fuel the fears on the market about the potential problems with Lotos’ major investments plans and put the stock under the pressure. The other meaning behind is that with coming elections in Poland the power of ruling PiS party is decreasing, which makes Lotos’ management to be brave enough to oppose the – merger plans, which are being pushed mostly by politicians.