Utility M&A in Italy is a political game for Iride and Hera

Implications: The consolidation in the Italian utility sector is a political game decided by the mayors of the biggest cities: Turin, Milan, Bologna and Rome. Turin's local utility Iride is trying to find a partner for a merger, after the acquisition of Genoa's local utility. Will it be Milan's AEM or Bologna's HERA? And what about Rome's ACEA?

Analysis: The consolidation in the utility sector in Italy is a difficult political game. The decision-makers are the mayors of the biggest cities: Turin, Bologna, Rome - all led by social-democrats - and Milan, led by a conservative mayor. However belonging to the same political area is not enough to proceed with mergers.

After the scenario was blocked for a long time, after Turin and Genoa took the groundbreaking decision to merge their local utilities into Iride, even Milan and Brescia decided to merge their own utilities (both listed), AEM Milan and ASM Brescia. The game has just started, and there are big question marks on the future steps.

The political observers find quite clear that the mayor of Turin, Sergio Chiamparino, is willing to find another partner for Iride, probably for a new merger. The most likely candidates are AEM-ASM Milan and HERA Bologna. Mr. Chiamparino started off-the-record talks with Bologna's mayor Sergio Cofferati, but the situtation became more difficult.

Apparently Mr. Cofferati is willing to proceed with a merger between his own local utility HERA and the one of Rome, ACEA. However he didn't take a position yet, and he keeps negotiating with both Turin and Rome. But Mr. Chiamparino is not willing to accept this strategy, and he's now expected to open his own talks with the mayors of Milan and Brescia, the two controlling shareholders of AEM-ASM.

There will be soon important news on this consolidation process, especially considering the change of political alliances inside the social-democrats due to the creation in October 2007 of the Democratic Party, which is going to be led by Rome mayor Walter Veltroni.