SNMRY Snam SPA (PK)

(Adds details and CEO comments)

By Neanda Salvaterra

MILAN--Italian natural-gas distributor Snam S.p.A (SRG.MI) said Wednesday it plans to spin off its domestic gas-distribution arm and boost dividends for its shareholders.

Snam is Europe's largest gas-infrastructure operator, according to research firm Jefferies International Ltd., and is planning a global expansion.

After the spinoff, Snam would retain a 13.5% stake in the new company, to be called Italgas, and existing Snam shareholders would receive a portion of its shares. Snam plans for the new company to list on the Milan stock exchange by the end of 2016.

After the spinoff, Snam said expects to pay shareholders a dividend of 0.21 euros ($0.23) per share for fiscal year 2016, and combined with the dividend from Italgas, current Snam shareholders should receive at least the EUR0.25 per share SNAM paid in 2015, the company said.

SNAM also said it would boost dividends by 2.5% annually in 2017 and 2018.

The deal would reduce Snam's net debt by EUR1.5 billion ( $1.6 billion), Jefferies said.

Snam said it will invest EUR4.3 billion over the next five years to strengthen its domestic network in Italy and integrate it with the rest of Europe. The company's board of directors has called a shareholders' meeting for Aug. 1 to approve the transaction and to review a EUR500 million share buy-back proposal that would see the company purchase up to 3.5% of its the post-spinoff shares over 18 months.

Snam Chief Executive Marco Alverá is working on a plan to expand the company. He said Wednesday he prefers to do so without making acquisitions. And he pointed to the U.K.'s decision last week to leave the European Union as a negative for energy-infrastructure buildouts.

"We think that the uncertainty in the energy market will be a big barrier to investing in the U.K. and Europe," he said.

Write to Neanda Salvaterra at Neanda.Salvaterra@wsj.com

(END) Dow Jones Newswires

June 29, 2016 12:19 ET (16:19 GMT)

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