In a meeting held this afternoon, the Boards of Directors of Hera and Amga approved and signed the framework agreement on the integration of Amga in the Hera Group and approved the relevant plan of merger.

In a meeting held today, the Boards of Directors of Hera S.p.A. ("Hera") and AMGA - Azienda Multiservizi S.p.A. ("Amga"), a company  that is 58.69% owned by the Municipality of Udine, approved the plan of merger of Amga with and into Hera (the "Merger"). As it is usually the case in these transactions, the Merger will be governed by a specific Merger agreement, which was signed today (the "Framework Agreement"). 

The Merger will be followed by the transfer of Amgas's gas distribution operation to AcegasAps (which, as a result, will change its name to AcegasApsAmga) and Amgas's energy sales and heat management operation to Hera Comm, which will continue as a legally separate entity, with its own name and registered office in Udine.

The Municipality of Udine will join Hera's shareholder agreement and will have one seat on AcegasAps's Board of Directors.

The industrial rationale of the deal 

The Hera Group and the Amga Group have several features in common, including the industry in which they operate, geographical proximity, shareholder structure and growth process. 

The merger between the two will make it possible to enhance to the utmost the value of the respective industrial assets in gas, power, public lighting, plant and cogeneration management and related activities, in terms of scale and footprint, also thanks to the transfer to Amga of the technological platform and know-how developed by the Hera Group.

The merger of Amga comes a few months after Hera's expansion in the Province of Gorizia (still through AcegasAps) and marks further progress in the growth and rationalization plans pursued by the Group in Friuli-Venezia Giulia, where AcegasAps, which was merged at the beginning of 2013, has strong industrial roots. The new operation, which is already part of the regional landscape and can add value to the existing industrial base, will be able to be increasingly effective and efficient in meeting the growing needs of the local community. 

The business combination is based on a sound rationale, with the following distinct traits, among others: 

(i) In keeping with the guidance outlined in the 2013-2017 Business Plan, the Hera Group's growth process continues, thanks to the recent capital increase resulting also from the agreement reached with Fondo Strategico Italiano.

(ii) The creation of additional value by the operation established in Friuli Venezia Giulia, with the possibility of a timely industrial integration thanks to the significant organizational and operational fit with AcegasAps's operation and the commercial fit with Hera Comm. 

(iii) Integration of Amga's industrial and management competencies in gas distribution in Veneto and Friuli Venezia Giulia. 

(iv) The achievement of economies of scale and significant industrial complementarities in the energy sector, with a stronger competitive positioning for Amga's business.   

(v) The strengthening of a diversified business portfolio with a good balance between regulated and competitive activities which guaranteed constant growth.  

(vi) The possibility to develop human and professional resources as well as the ability to maintain current employment levels.

(vii) Optimization of the industrial operations in Bulgaria, where both Amga and AcegasAps engage in the distribution and sale of gas to residential and industrial customers.

Amga's activities: development and location of the Gas Business in Udine 

The merger is an opportunity for Amga's shareholders, including Hera, which owns 6.7% of the company through AcegasAps. In fact, the integration is a step forward in the process to firm up the gas distribution business, strengthening its role in view of the upcoming tenders. In addition, it fosters the development of the other businesses, by improving effectively their competitiveness and the positioning of innovative activities with a low environmental impact. The new strategy will be centred on a direct presence in the local community, particularly by relocating in Udine the Gas Distribution Business for Veneto and Friuli-Venezia Giulia, as part of AcegasAps which, after the deal is completed, will be renamed AcegasApsAmga. 

In addition, under the terms of the Framework Agreement, (i) the Hera Group undertook to build at least 3 plants for the supply of methane gas for vehicles within 3 years of the signing by Hera and the Municipality of Udine of the industrial agreement; (ii) Hera undertook to participate in the gas tenders in the Province of Udine, through AcegasAps.

The new size and the synergies developed 

Thanks to Amga's 150.000 customers, the Group resulting from the business combination will have a base of 1.7 million gas distribution customers, including nearly 500 thousand in Friuli Venezia Giulia and Veneto. The Hera Group will have a customer base in gas and electricity in excess of 2 million and will manage over 380 thousand street lights, including 85 thousand in Friuli Venezia Giulia and Veneto.

The geographical proximity created, and the complementarity in the sales area, will allow the Group to achieve significant synergies and to optimize operations in Bulgaria. In addition, the new corporate organization resulting from the merger is designed to maintain the current level of tax revenues for the Friuli-Venezia Giulia Region and its area.  

The structure of the deal

The plan of merger was drafted on the basis of the financial conditions at 30 September 2013 of both Hera and Amga, as prepared pursuant to article 2501-quater of the Italian civil code, approved by Hera's Board of Directors today and Amga's Board of Directors on 14 January 2014. 

To determine the value of the transaction, the Boards of Directors of Hera and Amga - which retained financial advisors with proven expertise and experience, i.e.  CMC Capital LLP for Hera and EY for Amga - applied generally accepted valuation methodologies for transactions between companies with characteristics similar to Hera's and Amga's.

The Boards of Directors of Hera and Amga, taking into account the valuations of their respective advisors, agreed on a share exchange ratio of 572 ordinary Hera shares with a nominal value of €1.00 for every Amga share with a nominal value of €500.00 ("Share Exchange Ratio"). No cash payments will be made. 

The plan of Merger calls, among others, for Hera to increase its own share capital for up to a nominal amount of €68,196,128.00 via the issue of up to 68,196,128 new ordinary shares with a nominal value of €1.00 each, representing less than 5% of post-merger Hera's share capital, in relation to the application of the Share Exchange Ratio.

Based on the Share Exchange Ratio, the Municipality of Udine will receive 44,134,948 newly-issued ordinary Hera shares, accounting for 2.98% of Hera's share capital less Hera shares held in treasury at 31 December 2013. 

The plan of Merger provides for:

  • Amga's commitment, also on behalf of its subsidiaries, not to distribute profits and/or reserves and/or ordinary, special and/or interim dividends, except the ordinary dividend for 2013, amounting to €5 million, and the payment related to the distribution of the available reserve for €1 million, approved by the shareholders in the general meeting held on 23 December 2013;  
  • Hera's ability to recommend the distribution of profits and/or ordinary dividends related to fiscal year 2013 and/or distributable reserves for up to €127,920,835.53. This profit distribution does not alter the share exchange ratio.

The above share exchange ratio will the reviewed by an independent expert appointed by the Court of Bologna, pursuant to the applicable law, who will issue a fairness opinion. 

As a result of the Merger, dissenting Amga shareholders may exercise their right to withdraw pursuant to article 2437 of the Italian civil code.

Reorganizations expected to take place after the Merger

Pursuant to the Framework Agreement, following the Merger Hera is expected to take the following actions:

  • Transfer to Hera Comm of the equity investments in Amga Calore & Impianti S.r.l. ("Amga Calore") and in Amga Energia & Servizi S.r.l. ("Amga Energia"). Amga Calore will continue as a separate legal entity, with its own name and registered office in Udine. It will act as the Hera Group's arm in residential and industrial cogeneration, district heating, energy efficiency, thermal and electric renewable energy in the Friuli Venezia Giulia Region, in accordance with the Hera Group's commitments made with third parties in the Provinces of Trieste and Pordenone, and will pay local taxes as a resident in Udine, in keeping with applicable tax laws. Amga Energia will maintain its status as a separate legal entity, its name and its registered office in Udine until 31 December 2016; 
  • Transfer to AcegasAPS of Amga's assets and operations (except the equity investments held in Amga Calore and Amga Energia) and the equity interests held in Black Sea Technology Company Group, in Black Sea Company for Gas Compressed Ltd, in Energo d.o.o. and in Carniacque S.p.A. ("Transfers to AcegasAps").

Within the scope of the plan of Merger, and following the Transfers to AcegasAps, a "Gas Distribution" business will be set up in Udine. The new unit will report directly to AcegasAps's General Manager and will manage and control all the "Gas Distribution" activities of the Hera Group in the Friuli-Venezia Giulia and Veneto Regions. 

Conditions precedent to the Merger 

The Merger will take effect subject to the approval of the Hera and Amga shareholders at their respective extraordinary general meetings by 23 April 2014 and the fulfilment of the following conditions:  

  • Exemption or approval or non-prohibition of the Merger, conditional as well, by the competent Authorities (i.e. any entity, body or authority, whether Italian or in any other State or community, whether central or local, legislative, judicial, administrative, in accordance with the law, including the Antitrust Authority) by 23 June 2014;
  • Signing by Hera and the Municipality of Udine, by 24 June 2014, of an agreement covering:
    a) AcegasAPS's governance, that is the right of the Municipality of Udine to designate a representative on AcegasAPS's board of directors and the change of AcegasAPS's name to "ACEGAS-APS-AMGA S.p.A." and/or its acronym;
    b) Entry by the Municipality of Udine into the shareholders agreement executed on 21 December 2011 by Hera's 124 public shareholders, when it will be renewed to take effect as of 1 January 2015, in relation to the exercise of voting rights and the transfer of equity interests held in Hera by the parties to such agreement (the "Hera Agreement");
    c) A lock-up commitment related to 37,343,661 newly-issued ordinary Hera shares that the Municipality of Udine will obtain as a result of the Merger; this commitment will remain in force until the Municipality joins the Hera Agreement. By joining the Hera Agreement, the Municipality of Udine will have the right to designate a member of the committee of parties to the shareholder agreement, with the resulting increase in the number of members of this committee to 12 and will subject the abovementioned 37,343,661 shares to the share transfer restriction agreement.
  • Signing by Hera and the Municipality of Udine by 24 June 2014 of an agreement on, among others, the future development of Amga's and the Amga Group of companies' industrial activities. 

Timing of the transaction

Pursuant to the Framework Agreement, the Merger is subject to the approval of Hera's and Amga's shareholders at their respective extraordinary general meetings by 23 April 2014.

The Merger is expected to take effect by 1 July 2014. 

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The plan of merger, the directors' illustrative report under article 2501.quinquies of the Italian civil code prepared for Hera pursuant to Annex 3 of Consob Regulation 11971/1999 as amended, the fairness opinion of the common expert to be appointed by the Court of Bologna and the documentation required by law will be made available to the public in the manners and according to the schedule provided for by the applicable laws and regulations.

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