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Italy’s energy group, Eni SpA (E - Analyst Report) has agreed to divest 30% less one share in Snam SpA to state-controlled lender Cassa Depositi e Prestiti (“CDP”). This move will enable Eni to fund its major exploration and production expansion ventures.

Per the agreement, Eni will sell its stake to CDP for €3.47 a share, a 3% premium to Snam’s market price over the last 30 days. The total consideration would be €3.517 billion ($4.36 billion).

This sale comes after the Italian government issued a decree this month that forced Eni to sell at least 25.1% in Snam – the country’s largest gas network, storage and distribution company by volume – to CDP. However, the remaining stake can be sold to investors.

Under the decree, the Italian state-controlled energy company must sell its entire 52.5% interest in the national gas transmission network within 18 months. The Italian government is busy with its plan to enhance competition in the country’s gas pipeline network.

The deal is expected to be completed by the end of 2012 and is subject to antitrust approval. The sale of Eni’s entire stake in Snam will fetch the Rome-based energy operator up to €6.5 billion cash and resolve €11.5 billion of Eni’s debt.

The company aims to invest in the start-up of big projects with long-term production objectives. These include Kazakhstan's Kashagan field in the Caspian Sea, and increased exploration investments in promising basins, such as Eni's major gas discovery at the Coral 1 exploration prospect offshore northern Mozambique.

We believe Eni’s constant efforts to expand its upstream operations and endeavors in Barents Sea, Angola, Indonesia and Australia will go a long way to generate profitability in the future. Moreover, project start-ups, inputs from big projects including Junin 5 and Perla in Venezuela, the potential exploration scenarios in African countries Togo, Ghana, Democratic Republic of Congo and Mozambique, as well as the strategic position in non-conventional gas are expected to augment volumes going forward.

Eni, which competes with Statoil ASA (STO - Analyst Report), currently holds a Zacks #3 Rank, which translates into a Hold rating. Our long-term Neutral recommendation on the company remains unchanged.

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