TotalErg pump network sale hangs on refinery deal
(Reuters) France's Total and Italy's Erg are looking to sell a stake in their Italian refinery business Sarpom to facilitate an auction of one of the country's biggest service station networks, sources said.
The two companies jointly control TotalErg which operates close to 2,600 service stations in Italy with a market share of around 11% and also owns a quarter of Sarpom.
The sale of TotalErg, led by HSBC and Rothschild, is expected to begin by the end of the year, the sources said, noting that stripping out non-core assets such as refineries and lubricants would make the deal more attractive for prospective bidders.
Erg declined to comment while a spokesman for Total referred to previous comments by CEO Patrick Pouyanné who said in September the group continued to divest positions in Marketing & Services across Europe where its market share is too low.
TotalErg, 51% owned by Italian green company Erg, is valued at up to $888 MM and has drawn interest from private equity and industry players, with some hoping to buy a retail business free of refineries, lubricants and other non-core assets.
TotalErg has a 25% stake in the northern Italian refinery Sarpom which is controlled by ExxonMobil's Esso unit with a 75% stake. There was no indication of how much the partners would want for their stake.
Sarpom is proving to be a stumbling block in clinching a deal for the pump network since prospective bidders would not have control, sources said.
Should a carve out of Sarpom fail, the asset would be wrapped back into the main deal, one of the sources said.
Italy's service station landscape is over-crowded, with around 21,000 points across the country, twice the number in France and almost three times that in Britain.
A change of ownership for TotalErg may lead to restructuring of the business with some possible closures and job cuts.
It comes at a time when the government of Prime Minister Matteo Renzi is at risk of losing support ahead of a referendum on constitutional reform that could cost him his position.
Italian privately-owned refiner API has shown interest in the deal and may team up with a private equity outfit to make a competitive offer, sources said.
If successful, a deal with API would create Italy's biggest petrol station player, leapfrogging Eni and Kuwait Petroleum International which last year bought a network of 830 Italian pump stations from Royal Dutch Shell.
US buyout fund Carlyle is also expected to enter the race for the Rome-based business attracted by its turnaround potential and has held talks with API to evaluate a joint offer, the sources said.
"The question for private equity funds is whether it's easier to restructure the business alone or it's more convenient to team up with trade buyers," one of the sources said.
Any restructuring is expected to get the nod from Rome which is trying to push through legislation to cut the number of stations to bring them into line with demand, two sources said.
A handful of international investors including US buyout fund KKR and Irish diversified investment firm DCC are also eying a bid for the pump station business but are much less keen on refining.
Investing in petrol stations in Italy could offer scope to create value despite a decline in petrol consumption and a looming threat posed by electric cars.
"The upside is all in making the Italian network more efficient," one of the sources said.
Reporting by Stephen Jewkes; Editing by Keith Weir
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