* Preliminary talks about Italian gas merger underway - sources
* Deal unlikely before Italgas owner Snam revamps board - sources
* New gas market rules expected to prompt consolidation
By Stephen Jewkes and Pamela Barbaglia
MILAN/LONDON, Jan 9 (Reuters) - Italian state lender CDP is considering whether to merge Italy’s two top gas distributors with joint assets of roughly 8 billion euros ($8.7 billion) as the sector gears up for major reform, four people familiar with the matter said.
CDP (Cassa Depositi e Prestiti) controls Italy’s biggest gas distributor Italgas through gas grid operator Snam. CDP is also a shareholder of infrastructure fund F2i which bought into No. 2 player 2i Rete Gas in 2009 and now holds 72 percent.
“These are early stage discussions but the idea is on the table,” said one source, cautioning that no deal was certain and talks could still fall apart.
CDP and F2i declined to comment.
A second source said the merger of Italgas and 2i Rete Gas was CDP’s favourite plan but other options, including a stock market listing of Italgas, were being considered because of the risk a merger might not be approved on antitrust grounds.
A combination of Italgas and 2i Rete Gas, which together had revenues of about 1.8 billion euros in 2014, would hold some 50 percent of the Italian gas market.
CDP revamped its top management in July to get more closely involved in government projects to boost growth and upgrade infrastructure.
Claudio Costamagna, a former senior Goldman Sachs banker, was appointed CDP’s chairman while Fabio Gallia, previously head of BNP Paribas in Italy, became CDP’s chief executive.
But CDP is in no rush to finalise a merger of Italgas and 2i Rete Gas since the board of Italgas parent Snam, including long-standing CEO Carlo Malacarne, is up for renewal, two sources said, adding that advisers for a deal have yet to be appointed.
Snam, which is controlled by CDP through a vehicle that also includes State Grid Corporation of China, is due to nominate a board in April. On Friday, Snam strengthened its managerial structure by appointing Marco Alvera as its first Chief Operating Officer effective Jan. 15.
Alvera, a former gas manager at Eni, will report to Malacarne and will oversee the company’s growth on the international and domestic natural gas market.
Italy’s gas distribution sector is highly fragmented with more than 200 companies working across almost 7,000 concession areas serving more than 20 million clients.
But new rules cutting concession areas to just 177 are expected to streamline the industry to make it more efficient and cut bills.
Crucially, bidders who win a tender in a new area where they do not have full control of the distribution assets will need to compensate other grid owners and operators, a condition that will favour companies with strong balance sheets.
“A tie-up makes sense since the business is going to need big investments in coming years and Rome needs to create national champions in what is a strategic sector,” a third source said.
Snam, which also runs nearly all of Italy’s gas storage operations, is investing heavily in expanding its European footprint in its core business of gas transmission. Bankers said it could benefit from reducing its distribution commitments.
A banker familiar with the matter said in the past CDP had tried to get partners on board to help fund Italgas.
“Infrastructure and pension funds have been interested in the asset and could well be interested in the future,” the banker said. ($1 = 0.9170 euros) (Additional reporting by Luca Trogni in Milan; editing by Rachel Armstrong and David Clarke)