By Francesca Landini
MILAN (Reuters) -U.S. fund KKR is buying a 25% stake in Italian energy group Eni's biofuel business Enilive, in a deal that values the unit at 11.75 billion euros ($12.7 billion) including debt.
KKR's 2.94 billion euro purchase improves Eni's financial position while ensuring it retains control of Enilive, the Italian company said on Thursday.
The deal is part of Eni's so-called 'satellite' strategy to bring in co-investors to growth businesses. The strategy is aimed at raising funds to help Eni decarbonise its products.
"This agreement marks a significant further step in our business strategy related to the energy transition," Eni CEO Claudio Descalzi said.
The deal will be conducted via a 500 million euro capital increase for Enilive, which will be reserved for KKR, plus the sale of Enilive shares owned by Eni for 2.438 billion euros.
Eni will inject 500 million euros into Enilive before the deal closes, ensuring it is debt free.
"This (deal) aligns with our strategy to support transformative energy projects across Europe," said Alberto Signori, a partner in KKR's European Infrastructure team.
KKR has been investing in Italy since 2005 and recently finalised a deal to buy Telecom Italia (BIT:TLIT)'s fixed-line network.
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Royal Bank of Canada analyst Biraj Borkhataria said the deal added credibility to Eni's strategy following a similar transaction for another unit.
In March, Swiss asset manager Energy Infrastructure Partners agreed to take a minority stake in Eni's renewables subsidiary Plenitude.
Sources told Reuters last month that U.S. funds Stonepeak and Apollo were in talks with Eni over the potential sale of a second stake in Enilive.
Biofuels are expected to play a major role in decarbonising the truck, aviation and shipping sectors in coming years.
Enilive owns bio-refineries in Italy and abroad that produce biofuels using waste and vegetable oil partly from the group's agri-business in many African countries.
The subsidiary is expected to make core earnings of around 1.2 billion euros in 2025, up from 1 billion euros estimated for this year.
JP Morgan and Mediobanca (OTC:MDIBY) were financial advisers for Eni. Deutsche Bank and UniCredit were financial advisers for KKR, with Kirkland & Ellis and Gianni & Origoni acting as legal counsel.
($1 = 0.9270 euros)