By Pamela Barbaglia, Stephen Jewkes and Giancarlo Navach
LONDON/MILAN, Nov 4 (Reuters) - France's Total andItaly's Erg are looking to sell a stake in theirItalian refinery business Sarpom to facilitate an auction of oneof the country's biggest service station networks, sources said.
The two companies jointly control TotalErg which operatesclose to 2,600 service stations in Italy with a market share ofaround 11 percent and also owns a quarter of Sarpom.
The sale of TotalErg, led by HSBC and Rothschild, isexpected to begin by the end of the year, the sources said,noting that stripping out non-core assets such as refineries andlubricants would make the deal more attractive for prospectivebidders.
Erg declined to comment while a spokesman for Total referredto previous comments by CEO Patrick Pouyanné who said inSeptember the group continued to divest positions in Marketing &Services across Europe where its market share is too low.
TotalErg, 51 percent owned by Italian green company Erg, isvalued at up to 800 million euros ($888 million) and has drawninterest from private equity and industry players, with somehoping to buy a retail business free of refineries, lubricantsand other non-core assets.
TotalErg has a 25 percent stake in the northern Italianrefinery Sarpom which is controlled by ExxonMobil's Essounit with a 75 percent stake. There was no indication of howmuch the partners would want for their stake.
Sarpom is proving to be a stumbling block in clinching adeal for the pump network since prospective bidders would nothave control, sources said.
Should a carve out of Sarpom fail, the asset would bewrapped back into the main deal, one of the sources said.
CROWDED FIELD
Italy's service station landscape is over-crowded, witharound 21,000 points across the country, twice the number inFrance and almost three times that in Britain.
A change of ownership for TotalErg may lead to restructuringof the business with some possible closures and job cuts.
It comes at a time when the government of Prime MinisterMatteo Renzi is at risk of losing support ahead of a referendumon constitutional reform that could cost him his position.
Italian privately-owned refiner API has shown interest inthe deal and may team up with a private equity outfit to make acompetitive offer, sources said.
If successful, a deal with API would create Italy's biggestpetrol station player, leapfrogging Eni and KuwaitPetroleum International which last year bought a network of 830Italian pump stations from Royal Dutch Shell.
U.S. buyout fund Carlyle is also expected to enter therace for the Rome-based business attracted by its turnaroundpotential and has held talks with API to evaluate a joint offer,the sources said.
"The question for private equity funds is whether it'seasier to restructure the business alone or it's more convenientto team up with trade buyers," one of the sources said.
Any restructuring is expected to get the nod from Rome whichis trying to push through legislation to cut the number ofstations to bring them into line with demand, two sources said.
A handful of international investors including U.S. buyoutfund KKR and Irish diversified investment firm DCC are also eying a bid for the pump station business butare much less keen on refining.
API, KKR, Carlyle and DCC declined to comment.
Investing in petrol stations in Italy could offer scope tocreate value despite a decline in petrol consumption and alooming threat posed by electric cars.
"The upside is all in making the Italian network moreefficient," one of the sources said. ($1 = 0.9009 euros) (Reporting by Stephen Jewkes; Editing by Keith Weir)
DCC (DCC)
