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U.S. fund KKR is buying a 25 per cent stake in Italian energy group Eni’s biofuel business Enilive, in a deal that values the unit at €11.75-billion ($12.7-billion) including debt.

KKR’s €2.94-billion purchase improves Eni’s financial position while ensuring it retains control of Enilive, the Italian company said on Thursday.

The deal is part of Eni’s so-called ‘satellite’ strategy to bring in co-investors to growth businesses. The strategy is aimed at raising funds to help Eni decarbonize its products.

“This agreement marks a significant further step in our business strategy related to the energy transition,” Eni CEO Claudio Descalzi said.

The deal will be conducted via a €500-million capital increase for Enilive, which will be reserved for KKR, plus the sale of Enilive shares owned by Eni for €2.438-billion.

Eni will inject €500-million into Enilive before the deal closes, ensuring it is debt free.

“This (deal) aligns with our strategy to support transformative energy projects across Europe,” said Alberto Signori, a partner in KKR’s European Infrastructure team.

KKR has been investing in Italy since 2005 and recently finalized a deal to buy Telecom Italia’s fixed-line network.

Royal Bank of Canada analyst Biraj Borkhataria said the deal added credibility to Eni’s strategy following a similar transaction for another unit.

In March, Swiss asset manager Energy Infrastructure Partners agreed to take a minority stake in Eni’s renewables subsidiary Plenitude.

Sources told Reuters last month that U.S. funds Stonepeak and Apollo were in talks with Eni over the potential sale of a second stake in Enilive.

Biofuels are expected to play a major role in decarbonizing the truck, aviation and shipping sectors in coming years.

Enilive owns bio-refineries in Italy and abroad that produce biofuels using waste and vegetable oil partly from the group’s agri-business in many African countries.

The subsidiary is expected to make core earnings of around €1.2-billion in 2025, up from €1-billion estimated for this year.

JP Morgan and Mediobanca were financial advisers for Eni. Deutsche Bank and UniCredit were financial advisers for KKR, with Kirkland & Ellis and Gianni & Origoni acting as legal counsel.

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