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Italy: Franco-Italian diplomacy seals Edison deal

Electricité De France (EdF) emerged relatively unscathed from a nasty scrape over its involvement with Italy's Edison when it agreed last month to team up with Milan-based utility, AEM, to take over the country's second-largest power group for an estimated Euro12bn ($15.4bn). EdF has been under pressure from a put option drawn up in 2002 that gave its other partners in Italenergia Bis, which controls 62% of Edison, the right from early this year to sell their stakes to EdF. With cash-strapped companies such as Fiat looking for a way out, the Euro4bn the French firm would have had to stump up threatened the French government's float of a 30% state-held stake in EdF this autumn and caused EdF to publicly consider selling its holding.

Instead, EdF has agreed to join forces with AEM to acquire the power group. Under the terms of the deal, AEM and EdF will become equal shareholders in Italenergia and will then launch a public bid for the outstanding 38% of Edison shares, a requirement under Italian law if one firm holds more than 30% of a firm. Although no financial details were released, analysts say the deal is worth around Euro12bn, including the Euro4bn of debt on Edison's books.

What tempted EdF not to sell the stake was the Italian government's decision to throw out the measure that had capped EdF's voting rights in Italenergia to just 2%. This decree, approved in 2001, was the government's response to what it perceived as unfair competition in the energy sector because EdF was allowed to shop for assets in Italy when France's own energy market remained closed to Italian firms.

The European Commission had already challenged the decree in court, but the affair became highly political and was discussed when prime minister Silvio Berlusconi and France's President Jacques Chirac met in Brussels in February. Analysts say both sides were hopeful of finding a way out without further involvement from the Commission, or the courts, although the agreement remains subject to the approval of the Commission.

The French side appears to have helped smooth the deal by proposing an industrial partnership with the 45% state-owned Italian utility Enel, which would aim to give Enel access to new nuclear technologies through participation in the proposed European Pressurized Water Reactor. "This decision makes it possible for EdF to become an industrial player with real benefits and rights through sharing control of Italy's second-biggest electric company," said EdF's chairman and managing director, Pierre Gadonneix.

Had diplomacy not eventually won out, analysts say EdF probably could have found a way out of Edison. Endesa, the Spanish utility, had made an offer for 100% of Italenergia, while several Italian municipal suppliers and private-equity groups were also reportedly interested in buying the venture.  

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