Partners in Italian power utility Edison SpA (EDN.MI) Tuesday unveiled an agreement under which French state-controlled utility group Electricite de France SA (EDF.FR) would gain a controlling stake in Edison in exchange for granting Italian utility company A2A SpA (A2A.MI) control of the Edipower unit.

Under the preliminary deal, EDF would increase its stake in Edison to 80.7% from 50%, for EUR700 million, according to statements by EDF and A2A. The A2A-controlled Delmi would garner a 70% stake in Edipower, a which owns nine power plants in Italy for EUR800 million, the companies said.

Tuesday's announcement marks an important step towards EDF's long-standing goal of controlling Edison, but final closure of the long-discussed transaction still requires regulatory and other approvals.

EDF, a global player in the nuclear business, has for months eyed control of Edison as an important component of its efforts to strengthen its natural gas holdings and build its international presence in light of diminished operations in Germany and the U.S. But EDF has faced a tough negotiation with Italian interests, some of whom have seen Edison as a strategic asset for the country.

But in a positive sign for EDF, Italy's Industry Minister Corrado Passera praised the agreement. Passera met with EDF Chief Executive Henri Proglio last week.

"Edison and Edipower have very interesting growth prospects and I am certain that they will participate in the development of our country's energy sector with success," Passera said in a statement. "I share with Chairman Proglio a common vision of the market and I have received from him confirmation of the EDF group's long-term commitment to Italy."

Officials from Italian securities regulator Consob could not be reached Tuesday. One question about an earlier proposed EDF-A2A deal concerned whether Consob might require EDF to purchase remaining outstanding shares in Edison not covered by Tuesday's deal. EDF has vowed not to raise its offer on price, which in the current deal stands at EUR0.84 per share.

EDF Chief Financial Officer Thomas Piquemal described the proposal as "simplified" compared with an earlier version and said he was hopeful the latest deal would be finalized. Piquemal said the deal would improve Edison's prospects following recent criticism from credit ratings agencies.

On Dec. 23, Fitch Ratings downgraded Edison's credit rating, citing the negative impact of the prolonged negotiation process between Edison's shareholders and the company's "weak" liquidity position. Fitch noted that EUR1.1 billion debt in Edipower debt that would mature on December 31 of this year.

Earlier this month, Moody's placed Edison on ratings watch for a possible downgrade, noting that the failure of EDF and A2A to reach an accord on Edison's strategic and governance model. The Moody's note also alluded to an anemic outlook for profits, citing "continuing weak outlook for the power and gas industry in Italy in the context of a strained macroeconomic environment and an oversupply of gas in Italy," according to the Dec. 7 note.

EDF said in a statement that the deal was subject to approval by the corporate bodies of the companies concerned before Jan. 31, 2012, with final contracts to be signed "no later than" Feb. 15, 2012. The agreement also must be sanctioned by workers councils and various regulatory bodies.

EDF shares were down .35% to EUR 18.36 Tuesday. A2A was up 1 cent to .75 EUR, while Edison was down 1 cent to .82 EUR.

-By Nadya Masidlover, Dow Jones Newswires; +33 1 4017 1740; nadya.masidlover@dowjones.com

(Jennifer Clark and Gilles Castonguay in Milan contributed to this report.)

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