21. Discontinued Operations

On 7 November 2016, the start date of the listing of Italgas S.p.A. (formerly ITG Holding S.p.A.) on the Mercato Telematico Azionario organised and managed by Borsa Italiana S.p.A., the transaction separating Italgas Reti S.p.A. (formerly Italgas S.p.A.) from Snam S.p.A. became effective.

The purpose of the transaction was primarily a business one, aimed at separating the Snam Group’s Italian gas distribution activities, featuring specific characteristics compared with other Snam Group operations in terms of operational organisation, competitive context, regulation and investment requirements, from the gas transportation and dispatching, regasification and storage businesses in Italy and abroad.

Under the scope of the transaction, in a unitary and substantially simultaneous manner³⁹, which led to the transfer to Italgas S.p.A. of the 100% stake of Snam S.p.a. in Italgas Reti S.p.A., the following was agreed on 2 November 2016:

• the partial and proportional demerger with the allocation to Italgas of an equity investment equal to the 52.90% held by Snam in Italgas Reti and consequent allocation to Snam shareholders of the remaining 86.50% of the share capital of Italgas. As a result of the demerger, Italgas S.p.A. issued and assigned one Italgas S.p.A. share for every five Snam S.p.A. shares owned to Snam S.p.A. shareholders;
• the contribution in kind by Snam S.p.A. to Italgas S.p.A. of a shareholding equal to 8.23% of the share capital of Italgas Reti S.p.A. following the allocation to Snam of 108,957,843 newly issued shares of Italgas S.P.A., in order to enable Snam S.p.A. to hold, post-demerger, a stake of 13.5% in ltalgas S.p.A.;
• the sale by Snam S.p.A. to Italgas S.p.A. of 98,054,833 Italgas Reti S.p.A. shares, equal to 38.87% of the share capital, for a consideration of €1,503 million, following the assumption of a debt of the same amount pertaining to Italgas S.p.A. in order to generate an adequate level of financial debt.

The deed of demerger was recorded in the Milan Companies Register on 3 November 2016 following the issuing by Borsa Italiana of the admission to listing on the Mercato Telematico Azionario, issued on 2 November 2016, and the judgment of equivalence by CONSOB, pursuant to Article 57, paragraph 1, letter d) of the Issuers’ Regulation, for the Information Document relating to the demerger, issued on 3 November 2016.

As laid down in the deed of demerger, the effects begin from the start date of trading, i.e. 7 November 2016.

On 7 November 2016, through the listing of Italgas S.p.A., the shareholder’s agreement, signed on 20 October 2016 by CDP Reti S.p.A. and CDP Gas S.r.l., involving all the shares held by each of them in Italgas S.p.A., became effective. The shareholder’s agreement constitutes a block voting shareholder’s agreement, with Snam having the right of early withdrawal if, in the event of Snam opposing the vote of the syndicated shares on reserved subjects of an extraordinary nature, Snam does not sell its equity investment in Italgas within the next 12 months (accelerated exit). The shareholder’s agreement also requires CDP Reti, CDP Gas and Snam to submit a joint list for the appoint of the Board of Directors of Italgas that ensures Snam has 1 candidate. The transfers of Snam’s equity investment in Italgas (even in the case of accelerated exit) are subject to the consent and pre-emptive rights of CDP Reti, as well as to the obligation of a takeover by a third-party. Snam may also increase its equity investment. The agreement is for three years, renewable unless notice is given; if Snam does not renew it, CDP Reti will have the option to purchase Snam’s equity investment in Italgas at the fair market value.

Following the transaction, each Snam shareholder will own two different shares, in place of each Snam share, representing two different areas of the business. Specifically, the Snam shares, on the one side, Snam being a company operating in the transportation, dispatching, regasification and storage of natural gas, and the ITG Holding shares, on the other side, Italgas being a company operating in the distribution of natural gas.

For the purpose of the 2016 financial statements, as the separation of the natural gas distribution business involves a major line of business, this led to the separate representation of the results and cash flows of the natural gas distribution segment for the period 1 January – 6 November 2016, the distribution segment as discontinued operations pursuant to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations”.

The main economic – financial data of discontinued operations, net of inter-company items for 2016 (01.01.2016 – 06.11.2016) and for the year of comparison 2015:

The transaction of separating the natural gas distribution business from Snam led to a reduction in the net financial debt of €3.6 billion in total, of which €2.1 billion related to the repayment at market value of the inter-company loans and €1.5 billion to the repayment of the vendor loan under the transaction involving the sale of 38.87% of Snam S.p.A.’s stake in Italgas S.p.A. The cash in for the company amounted to a total of €3.2 billion, net of €0.4 billion in EIB loans relating to Italgas projects transferred to the latter.

Note that the transaction of separating the natural gas distribution from Snam is a business combination involving entities under common control, specifically, the companies participating in the business combination are ultimately controlled, pursuant to IFRS 10 by the same party, i.e. CDP, both before and after the combination and this control is not temporary in nature. As a result, for the purpose of the Snam Group consolidated financial statements, the transaction in its entirety was recorded applying the principle of continuity of values.