KazMunaiGas has confirmed that it is offering USD 1.2 bn for the 54% stake in Lithuanian refinery Mazeikiu Nafta from Yukos, according to a Lithuanian government official statement cited by Reuters. Note that PKN Orlen CEO Mr. Chalupec has indicated earlier that PKN’s offer would be higher than this amount. As the deadline for final offers approaches on January 27, it seems almost certain that PKN Orlen would win the tender. PKN Orlen is rumoured to be offering USD 1.5bn for the stake, which values the entire company at USD 2.8bn. Our initial estimate for Mazeikiu of USD 2.3 bn was based on processing capacity comparison with Polish refineries (Gdansk, Plock). However, based on industry EV/EBITDA comparison, Mazeiku's value is closer to USD 3.0 bn.
Additionally, taking into consideration substantial additional synergies, namely:
i) the Mazeiku acquisition would open exporting routes to Western European markets for PKN Orlen;
ii) it would decrease competitive pressure in north-eastern part of Poland; and
iii) it would improve PKN Orlen's bargaining position versus Russian oil suppliers, as it would gain control over 34% of Russia’s oil exporting capacity,
we believe that the Mazeikiu acquisition warrants a premium. We reiterate our Buy rating on the stock with fair value estimate of PLN 69.