Gas Natural picks Edison, 2i Rete Gas for Italy assets - sources

By Jose Elías Rodríguez and Stephen Jewkes

MADRID/MILAN (Reuters) - Spain's Gas Natural (GAS.MC) has approved the sale of its Italian retail business to EDF (EDF.PA) unit Edison and its distribution network to 2i Rete Gas, two sources said on Wednesday.

The deal is expected to raise about 1 billion euros (885.85 million pounds) overall for the Spanish energy group, the sources said. The sale had been reported by Italian daily Il Sole 24 Ore.

A final agreement is expected to be reached in the next two or three weeks, one of the sources said.

Gas Natural said in a statement on Wednesday after the report that it was still selecting a potential buyer, adding no decision had been made as yet and no sales agreement signed.

Edison and infrastructure fund F2i, which controls Italy's second-biggest gas distributor 2i Rete Gas, declined to comment.

Gas Natural, which has been in Italy since 2002, runs more than 7,000 km of regulated gas distribution pipelines, mainly in the south, alongside a retail business that sells gas and power to more than 420,000 families and 17,000 companies.

But its Italian business generates just over 1 percent of its core earnings. Earlier this year it hired Rothschild to carry out a strategic review of its businesses in the country.

Sources had previously said Italy's biggest gas distributor, Italgas (IT.MI), was also in the race for the Italian grid assets, which could be worth 500-550 million euros. They added France's Engie was interested in retail operations.

Italy's gas distribution industry is highly fragmented but new rules cutting concession areas are set to streamline the sector to make it more efficient.

(Reporting by Jose Elias Rodriguez and Stephen Jewkes, Editing by Steve Scherer and Louise Heavens)