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Poland's PKN Orlen Is Buying As Fast As It Can


How do you build Eastern Europe's biggest company? First, make sure you're in a richly profitable business. Second, deal till you drop, since the easiest way you can scale up fast in this fragmented market is through acquisitions. And third, make sure you're the most driven, ambitious executive in the region.

Polish energy group PKN Orlen and its CEO Zbigniew Wrobel fit this description in spades. The company's business -- refining and selling gasoline, fuel oil, and other petroleum products -- is a perfect proxy for a briskly growing Eastern Europe, most of which has just entered the European Union. PKN Orlen sells Poland's growing hordes of motorists gasoline, which it distributes through its 1,900 gas stations. The company also provides utilities with the liquefied gas they turn into energy for Poland's booming factories. Then there's the asphalt the country uses to build and repair its growing network of roads: PKN Orlen makes that, too. No wonder PKN Orlen's stock, a darling of Western investors, has done twice as well as the main Warsaw index over the past five years. First-quarter profits, at $102 million, rose 12%, well ahead of expectations.

But being No. 1 in Poland isn't enough. Why not be a regional power -- a force that can command economies of scale in refining, run one of the largest chains of petrol stations in Europe, and even stand up to the Russian energy giants? That's the kind of company PKN Orlen boss Wrobel wants to create -- and fast. Wrobel, 51, is a dynamic, Western-style manager, who did stints as sales director for Philip Morris in Poland and as chief of corporate development for PepsiCo in Central and Eastern Europe, before joining Orlen in February, 2002. He talks just like a consumer marketer. "We want to build a powerful company with a strong identity," he says.

That's why Wrobel has been racing to cut deals in the region. December, 2002: Wrobel buys nearly 500 filling stations in Northern Germany from BP. April, 2004: PKN Orlen grabs a 63% slice of Czech oil company Unipetrol. Next up: a proposed merger with MOL, PKN Orlen's counterpart in Hungary, to create a company with a market capitalization of around $8.5 billion and sales of $15 billion. If Wrobel pulls it off -- a big if -- it will be the biggest merger ever in the region.

Clinching a deal won't be easy. MOL has qualms about joining forces with Orlen as long as the Polish government controls 27.5% of its equity. If a deal goes through, the Hungarians are likely to call for the Polish government to sell at least half of its interest. That would bring Warsaw's stake in line with the Hungarian government, which still owns a 12% slice of MOL. On the other side, some politicians in Warsaw worry that merging Orlen with MOL may increase its vulnerability to a Russian takeover. The Poles have reason to be alarmed. Russian oil company Yukos recently acquired 60% of Lithuania's Mazeikiu Nafta refinery. Meanwhile, Moscow-based Lukoil has repeatedly tried to buy a majority stake in Grupa Lotos, Poland's second largest refinery.

TRIFECTA? Wrobel swears he'll get the MOL deal done. When he does, he'll have a company bigger than OMV, the largest Austrian refiner -- and his other big rival. Led by CEO Wolfgang Ruttenstorfer, OMV also has big goals, plus a 9% stake in MOL. After a string of acquisitions in the past two years in Central Europe, Ruttenstorfer hopes to land Romania's oil and gas group Petrom. "We aim to double our 2001 market share in the [Danube Valley] region to 20% by 2008," he says.

Some analysts think Wrobel's ultimate aim is to engineer a three-way merger between Orlen, MOL, and OMV. The result would be a regional giant with about $25 billion in sales, large even by Western standards. Of course, merging two companies creates all sorts of cultural, organizational, and political problems. Merging three could be a logistical nightmare. But Wrobel didn't build his company by shrinking from a challenge. One way or another, he's going to build the biggest energy play in the East. And he's going to build it fast. By Bogdan Turek in Warsaw and David Fairlamb in Vienna


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