On October 27, 2006, UNIPETROL, a.s. ("Unipetrol"), as seller, and Zakłady Azotowe ANWIL Spółka Akcyjna, with its registered office at Włocławek, Toruńska 222, Poland, KRS (Company Id. No.): 0000015684 ("Anwil"), as purchaser, executed the Share Purchase Agreement (the "Share Purchase Agreement") on sale of 81.78 % of shares of SPOLANA a.s., with its registered office at Neratovice, ul. Práce 657, Postal Code: 277 11, IČ (Company Id. No.): 45147787 ("Spolana").
Under the Share Purchase Agreement, the price for the shares representing in the aggregate 81.78 % of the registered share capital of Spolana (the "Sale Shares") amounts to CZK 640,382,956.
Under the Share Purchase Agreement, Anwil is obligated to undertake financial restructuring of Spolana via satisfaction in full of the debt owed by Spolana to Unipetrol amounting to CZK 660 million as of 25 October 2006.
The purchase price may be subject to the following price adjustment on the occurrence of any of the following conditions:
(i) environmental guarantee provided by the National Property Fund of the Czech Republic (now, the Czech Republic through the Ministry of Finance) will not be sufficient for compensation of costs for the environmental damage remediation of the Old Amalgam Electrolysis project – in such case, Unipetrol will be obligated to financially indemnify Anwil up to 40 % of the purchase price provided that all necessary steps will have been taken by Anwil and Spolana without success for obtaining additional funds for this purpose, or
(ii) other potential obstacles in Spolana's future operation – Unipetrol will be obligated to financially indemnify Anwil up to 1-3 % of the purchase price.
The Board of Directors of Unipetrol summarizes below the information concerning the procedure of the divestment process of the Sale Shares.
The divestment process was launched consistent with the Equity Story 2005 communicated to all Unipetrol's shareholders as well as with the Main strategic objectives and key targets within long-term activity plan in UNIPETROL, a.s. presented at the Shareholders General Meeting of Unipetrol in April 2006. It was conducted as a tender open to all eligible participants and was based on the principles of the equal treatment and non-discrimination.
On 23 January 2006, Unipetrol published an announcement in the Hospodářské noviny on the intention of Unipetrol to sell the Sale Shares. Ten investors, seven strategic and three financial, both Czech and foreign, expressed their interest to participate in the tender. All of the investors satisfied the requirements for participation in the tender and were allowed to proceed to the following non-binding phase of the tender.
The deadline for the delivery of the non-binding bids was set on 13 March 2006, 6 p.m. Unipetrol received three non-binding bids from strategic investors (both Czech and foreign).
Prior to their submission, Unipetrol defined, in cooperation with its external advisors in the process – Deloitte Czech Republic B.V., organizační složka ("Deloitte") and Weil Gotshal & Manges v.o.s. ("WG&M") – the following criteria for the evaluation of the non-binding bids:
• financial parameters of the offers,
• proposed development program (including intent towards PVC production, environmental requirements fulfilment, intended capex),
• proposed approach towards financial restructuring,
• bidders' credibility, and
• formal requirements (as set in the Process Letter).
Based on the evaluation of the non-binding bids, on 21 March 2006, the Board of Directors of Unipetrol decided to short-list two investors, whose offers were evaluated as the best, and to invite them to the data room for the purposes of conducting their due diligence review of Spolana.
The due diligence process took place at Spolana premises from 27 March 2006 to 31 March 2006 and on 6 April 2006. On April 6 2006, one investor withdrew from the tender.
The binding offer of Anwil was delivered to Unipetrol on 15 May 2006 and was evaluated in accordance with the same criteria as the non-binding bids.
On 26 May 2006, Unipetrol decided to commence the negotiations with Anwil. The key issues, which were addressed in the negotiation phase, were, in particular:
• pre-closing covenants (including, financial debt restructuring),
• post-closing covenants (including, further business operating of Spolana), and
• environmental issues.
The divestment process was managed by the Board of Directors of Unipetrol, carried out in a transparent manner and monitored at regular intervals and overseen by the Supervisory Board of Unipetrol and its respective committees. In addition, the following external advisors participated in the project – WG&M as legal advisor and Deloitte as financial advisor. The terms and conditions of the divestment of the Sale Shares were approved by the Supervisory Board and the Board of Directors of Unipetrol on 26 October 2006.
The measures assuring the maximum objectivity and professionalism were adopted in the divestment process. Selection of the bidders to next stages of the process was always based on a mechanism of the pre-defined professional set of evaluation criteria established in cooperation with the external advisors. The main principle was to base the evaluation on maximization of the benefit of the divestment for Unipetrol and its shareholders on the one hand and optimization of further relationships with the rest of Unipetrol Group on the other hand. In doing so, the Board of Directors of Unipetrol sought to ensure the protection of interests of Unipetrol and its shareholders.
Extraordinary efforts were focused on valuation of the Sale Shares. The three-stage procedure was applied, as a result of which the following documents were prepared:
• business review including valuation of the binding offer by an external independent consulting firm for internal purposes (Deloitte),
• fairness opinion of a reputable independent firm (BDO Prima Audit s.r.o. ("BDO")) on valuation of the Sale Shares, and
• valuation of the Sale Shares prepared by independent court experts (Mr. Jiří Hlaváč and Mr. Ladislav Kollárik (Horwath TPA Notia Consulting s.r.o.)).
Deloitte determined the value of the Sale Shares (representing 81.78 % of the registered share capital of Spolana) in the amount of up to CZK 353 million. BDO, assuming that the buyer is sharing synergies with the seller, concluded in its fairness opinion that the range for the fair value of the Sale Shares is between CZK 490 million and 757 million. The results of the valuation performed by the court experts Mr. Jiří Hlaváč and Mr. Ladislav Kollárik (Horwath TPA Notia Consulting s.r.o.) demonstrate that, with a strategic investor, assuming that the buyer is sharing synergies with such investor, and with the realization of risk adjustment, the value of the Sale Shares ranges between CZK 407 million to CZK 712 million.
The process of the divestment of the Sale Shares was evaluated by an independent reputable firm in its fairness opinion which confirmed that the divestment process has been conducted and performed up to the market standards and best practices.
On a non-consolidated basis, the disposal of the Sale Shares will result in Unipetrol's net profit of approximately CZK 70 million. Taking into account the overall effect in consolidated financial statements, the loss in the range of CZK 350 million will arise as a result of the transaction.