Global Insight Perspective | |
Significance | The purchase will make Eni the key player in the strategically located Belgian gas market, while the parallel transfer of assets to Distrigas owner Suez will see the French company gain a significant presence in the Italian energy market. |
Implications | The sale of Distrigas fulfils an antitrust requirement laid down by the European Commission (EC) for the upcoming merger of Suez and Gaz de France (GdF). |
Outlook | Following the closing of the deal, which is expected by the end of 2008, Eni will launch an offer to purchase the outstanding shares in Distrigas and complete a full takeover of the company. |
Eni the Victor
Italian oil and gas company Eni has beaten competition from Electricité de France (EDF) and Germany's E.ON to strike a deal to purchase a 57.25% stake in Belgian gas supplier Distrigas. Eni will pay around 2.7 billion euro (US$4.18 billion) for the stake, which is to be sold by parent company Suez as a condition of its upcoming merger with GdF. Eni chief executive Paolo Scaroni and his Suez counterpart Gerard Mestrallet signed an agreement on the sale in front of journalists in the Belgian capital of Brussels yesterday.
Eni's offer for the stake equates to 6,810 euro per share, representing an 8% premium over the closing price when share trading was suspended on 23 May. However, the deal will not be limited to a straight transfer of cash, with the companies also striking an agreement on a reciprocal transfer of assets from Eni to Suez. The most significant asset to be transferred under this parallel agreement is Eni's Rome-based gas-distribution business Italgas, which distributes over 1.5 bcm of gas each year through a total pipeline network of 5,300 km. Suez will pay 1.1 billion euro for Italgas, and will also become a party to long-term contracts for gas supply to be delivered in Italy and abroad for a period of up to 20 years. In addition Suez will gain access to up to 1,100MW of electricity from Eni's power plants for a period of 20 years by means of a virtual power plant agreement, at a price of 1.2 billion euro. Suez will also gain a small share in a number of gas and oil production assets in the United Kingdom, the Gulf of Mexico, Egypt, and Indonesia, valued at 273 million euro, and will take over a contract for the receipt of 0.9 bcm per year of LNG in equivalent gas in the Gulf of Mexico for a period of 20 years.
Outlook and Implications
The parallel sales agreements see Suez fulfil its ambition to receive additional energy assets in exchange for the compulsory sale of its 57.25% Distrigas stake. Suez's acquisition of Italgas will add to its existing power, water, and waste business Acea in Italy, and, in addition to the 1,100MW of generation capacity that the company will acquire, will give Suez a prominent position in Italy's utilities market. Mestrallet noted that the asset-swap arrangement would replace about two-thirds of the gas-supply volumes that the company will lose as a result of the enforced Distrigas sale.
For Eni, the purchase of Distrigas will give it the dominant position in the strategically located Belgian gas market. Belgium is a key transit point for gas in Europe, containing both the Zeebrugge LNG terminal as well as the 25.5-bcm United Kingdom-Belgium interconnector, in which Distrigas holds a 16.4% stake (to be reduced to 11.4%). The purchase will boost Eni's position in northern Europe where it has a relatively weak presence and, according to the company, make it the leader in the European gas sector with a market share of close to 25%. In 2007, Distrigas reported a turnover of 4.3 billion euro, a net income after minority interests of 294 million euro, and total gas sales of 17 bcm.
The companies are expected to complete the asset transfers by the end of 2008, pending regulatory clearance by the EC and the successful completion of the Suez-GdF merger. At this point, Eni has indicated that it will launch a mandatory tender bid for the outstanding shares in Distrigas to complete a full takeover of the company. Eni said the tender will be offered on the same terms and at the same price as its agreement with Suez on the initial 57.25% stake.