A key shareholder in Italian power group Edison Spa (EDN.MI), municipal utility A2A SpA (A2A.MI), Monday rejected an offer by French state-controlled power giant Electricite de France SA (EDF.FR) to buy it out of Edison, saying the proposal would have it selling its stake at a discount.

EDF and Edison's Italian shareholders have been entangled in long talks over the utility's fate, trying to reach a deal that would give clear control of the Italian utility. The most recent deadline for an agreement is Oct. 31. If no deal is found by then, Edison's stakes would be auctioned.

EDF, which is 85%-owned by the French state, offered to buy out investment vehicle Delmi from Edison, although it came short of elaborating on an exact price per share.

The French group proposed to buy Delmi's Edison shares in three years time, at a price based on the earnings before interest, tax, depreciation and amortization, or Ebitda, multiple of a sample of comparable listed companies. The option would allow for EDF's Italian partners to get a better price, as markets which are currently depressed would have improved by then.

Yet, "it's a proposal that is unacceptable," the chairman of A2A's supervisory board Graziano Tarantini said, according to MF-Dow Jones. "We can't sell the company at a discount."

Last week, a person familiar with the matter told Dow Jones Newswires that EDF turned down a request from Delmi to be bought out of Edison for EUR1.55 a share. Sunday, Italian business daily Il Sole 24 Ore reported that EDF was ready to offer EUR1.15 and EUR1.30 a share.

Edison is 61.3% held by Transalpina di Energia, itself 50% held by EDF and 50% by Delmi, which in turn regroups Italian shareholders led by A2A SpA (A2A.MI) and including Iren SpA (IRE.MI). EDF owns 19.36% directly in Edison.

In short, EDF owns directly and indirectly 50% in Edison and hoped to increase its stake to 80%, had the offer been accepted and the put option exorcized by the Italian investors.

As well as restoring some credit to its international strategy after having exited both the U.S. and the German markets within less than a year, EDF sought through this offer to transform Edison into its development base for electricity and upstream natural gas activities around the Mediterranean region, EDF's Chief Financial officer Thomas Piquemal said during a conference call.

EDF also offered A2A and Iren SpA (IRE.MI) to exchange their respective 20% and 10% stakes in Edipower, an Edison power generation unit, for 100% of the share capital of Edens, another fully-owned subsidiary of Edison and the fourth-largest Italian producer of electricity from renewable sources. A2A and Iren would also be granted a call option to acquire a hydro-generation facility at Mese at fair market value in three years, EDF said.

Earlier this year EDF reached a preliminary agreement with A2A that would have allowed the French utility to take control of Edison and let A2A acquire some hydroelectric assets. However, the Italian government opposed the deal, forcing them to renew talks to find another solution.

Tarantini said he preferred to work on improving the terms of an agreement reached with EDF last March.

EDF shares closed up 1.6% to EUR22.90. Monday.

-By Geraldine Amiel, Dow Jones Newswires; +33 1 40171767; geraldine.amiel@dowjones.com

(Oscar Bodini from MF-DJ and Gilles Castonguay in Milan contributed to this story)

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