Italgas begins exclusive talks to buy 2i Rete Gas

By Francesca Landini

MILAN (Reuters) -Italgas, Europe's biggest gas distributor, said on Monday that it started exclusive talks to acquire smaller rival 2i Rete Gas.

A merger between the two would be a major step in the consolidation of the gas distribution market in Italy with 2i Rete gas adding a 20% market share to Italgas' 35%, according to analyst calculations.

2i Rete Gas, which is Italy's second-largest distributor for the fuel, said in February it wanted to list on the Milan bourse, but in March media speculation emerged about an approach by Italgas valuing the rival at 4 billion to 5 billion euros ($4.3 billion to $5.4 billion).

Sources told Reuters on Monday that Italgas had nudged up a preliminary offer, winning the green light from the rival's shareholders for several weeks of exclusive talks.

Italian infrastructure fund F2i has a 64% stake in 2i Rete Gas. Dutch pension fund APG and buyout group Ardian together hold the remaining 36.1% under the vehicle Finavias.

"Without interrupting the listing process, F2i and Finavias have granted Italgas a period of exclusivity in order to complete a due diligence preparatory to a possible binding purchase offer," investors in 2i Rete Gas said in a separate statement.

Should the acquisition go through, Italgas will finance the acquisition via a bridge credit facility underwritten by JP Morgan, which could be refinanced through a combination of equity, debt or equity like instruments, the suitor said.

JP Morgan is acting as financial adviser and Legance is acting as legal adviser to Italgas. Rothschild is advising Ardian and APG, while Lazard is assisting F2i.

($1 = 0.9268 euro)

(Additional reporting by Rishabh Jaiswal in Bengaluru; Editing by Alison Williams)