7.4. SETTLEMENT OF THE ACQUISITION OF RUCH S.A. SHARES IN ACCORDANCE WITH IFRS 3 BUSINESS COMBINATIONS

On 11 April 2019 PKN ORLEN approached RUCH S.A. (RUCH) with a conditional financing proposal relating to the intended acquisition of a controlling interest in the company. This decision was preceded by a due diligence of the company and a process to work out a framework for future restructuring measures. Since then, steps have been taken to adopt and approve restructuring arrangements, which were one of the pre-conditions to PKN ORLEN providing financing to RUCH. In the meantime, a detailed restructuring plan for the company was developed, and an investment agreement was negotiated with the other partners on the project – PZU S.A., PZU Życie S.A. and Alior Bank S.A. The signing of investment agreement in June 2020 and clearance from the anti-trust regulator for PKN ORLEN to acquire control of RUCH have enabled the acquisition process to move forward. The final and binding statement by the court of the performance of restructuring arrangements with creditors by RUCH in November 2020 as part of two accelerated arrangement proceedings was the last condition and enabled PKN ORLEN to finalize the acquisition of a majority stake in RUCH.

On 24 November 2020 General Meeting of RUCH adopted a resolution to increase the company's share capital by the amount of PLN 109,189,617, through the issue of 109,189,617 shares with a nominal value of PLN 1 each. The issue price of 1 share was PLN 1,83. As a part of the adopted resolution, PKN ORLEN acquired and at the same time paid for 70,973,251 shares of RUCH for the consideration of PLN 130 million, representing 64.94% of the share capital of the company and corresponding to 64.94% of the total number of votes at the General Meeting of RUCH. Thus, 24 November 2020 is the date on which PKN ORLEN obtained control of RUCH.

The acquisition of the RUCH shares is being settled using the acquisition method in accordance with IFRS 3 Business Combinations.
At the date of approval of these consolidated financial statements, the purchase price allocation process had not been fully completed yet. As a result, the Group has decided to settle the transaction provisionally, under which:

• intangible assets not previously reported in the RUCH financial statements, in particular the fair value of the acquired trademarks were recognized,
• the acquired assets and liabilities were measured at their fair value, except for property, plant and equipment and investment property,
• contingent liabilities requiring recognition were identified and measured in accordance with the specific requirements of IFRS 3 Business Combinations.

The process of valuation at fair value of assets classified as property, plant and equipment and investment properties carried out by independent valuers has not been finalized yet. For the purposes of this financial statement, these items are provisionally presented at book values.
Therefore, the goodwill recognized on the acquisition may be modified as part of the final settlement of the RUCH transaction, which the Group plans to complete within 12 months of taking control of the company.

The settlement of the acquisition of RUCH S.A. shares at the date control was taken on the basis of the data prepared as at 30 November 2020. There were no material differences in the accounting data between 24 November 2020 and 30 November 2020.

By acquiring RUCH, the Group is pursuing its strategy of developing the retail area based on locations outside fuel stations and comprehensive customer services, including courier services. Effective use of RUCH's assets will enable ORLEN Group to gain logistic advantages through significant expansion of the sales network and planned development of new catering and retail formats, as well as further increase competitiveness in terms of service quality, assortment, services and improved operating standards in the retail segment.

The goodwill arising from the acquisition of RUCH results from the projected synergies arising from the merger of RUCH's operations with ORLEN Group and represents the value of assets that could not be recognized separately under the requirements of IAS 38 (employees and their knowledge). As at 31 December 2020, the Group did not identify any impairment in relation to the recognized temporary goodwill.

At the date of taking control, as well as at present, securities were established on the assets of RUCH and its subsidiaries for the benefit of Alior Bank under the agreements signed with the bank. As of 31 December 2020, RUCH's debt to Alior Bank has been repaid in full. RUCH is in the process of taking the remaining steps necessary to release the securities established on its assets.