Snam Rete Gas Falls on Rights Offer to Fund Purchases

By Gianluca Baratti

Feb. 13 (Bloomberg) -- Snam Rete Gas SpA, Italy’s gas grid operator, fell as much as 4 percent in Milan after saying yesterday it would proceed with a rights offering of up to 3.5 billion euros ($4.5 billion) to help fund the acquisition of two businesses from Eni SpA.

Snam agreed to buy gas retailer Italgas SpA for 3.07 billion euros and Stoccaggi Gas Italia, or Stogit, for 1.65 billion euros, Rome-based Eni said yesterday. Snam will finance the deals through a rights sale in which Eni will participate, and new loans of 1.3 billion euros.

Eni is selling Italgas and Stogit to satisfy regulators who want Italy’s largest energy company to separate some of its gas operations from its oil business, Eni said. As a 50.03 percent shareholder of Snam, Eni will retain control over those units.

“The market might be initially concerned by the large rights issue,” Matija Gergolet, an analyst at London-based Goldman Sachs Group Inc., said in a note yesterday.

Gergolet said the company would need to raise the full amount of the rights offering to maintain a net debt ratio of four times earnings before interest, taxes, depreciation and amortization. He has a “cautious” rating on the stock.

Snam Rete Gas fell as much as 4 percent to 3.84 euros and traded at 3.85 euros at 12:05 p.m. in Milan.

Italgas, Stogit

Italgas sells gas in 1,300 Italian towns and cities and transports 6.5 billion cubic meters of the fuel a year in its 40,000 kilometers (24,860 miles) of pipes, according to the company Web site.

Stogit has eight storage areas which provide energy security during disruptions such as last month, when gas shipments were interrupted during a dispute between Russia and Ukraine. More than half of Italian electricity is generated by gas.

Snam reported yesterday that 2008 net income declined 11 percent to 530 million euros. Earnings rose 20 percent from adjusted 2007 profit, after accounting for items including changes in tax rates. The company will boost its dividend payout by 9.5 percent to 23 cents a share.

Snam said at a presentation today that cost savings and “synergies” will total 2 percent of 2008 earnings before interest, taxes, depreciation and amortization by 2012. Based on Snam’s pro forma Ebitda figure of 2.2 billion euros, it’s targeting about 40 million euros in annual cost savings and synergies by 2012.

Chief Executive Officer Carlo Malacarne said at the presentation that Snam will maintain its dividend at the “top range” of European Union utilities.

To contact the reporter on this story: Gianluca Baratti in Madrid at gbaratti@bloomberg.net