Centrica shares fall as takeover speculation dims

Shares in Centrica, the former British Gas supply business which has demerged to become an independent company, got off to a bumpy start yesterday in their first day of stock market trading, writes Chris Godsmark.

Uncertainty over the group's long-term future took hold of the markets, which marked Centrica shares down 10.25p to 65.25p compared with Friday's closing price on the unofficial "grey market". Shares in BG, the renamed core of British Gas which runs the pipeline network and offshore exploration operations, edged up 2.5p to 174.5p.

The price had risen sharply on the grey market last week on speculation that Centrica would be a takeover target for one of the big oil companies seeking a route into the UK gas business. However analysts pointed to the many drawbacks which are likely to dog Centrica, including management's prediction that it will not pay a dividend "for the foreseeable future". Demerger documents show Centrica lost a notional pounds 486m in the nine months to the end of last September after exceptional charges of pounds 457m.

Simon Champion, a gas analyst with Charterhouse Tilney, said: "We don't see it as a takeover target because we can't see who would want to buy it. It isn't attractive to income funds, unlike British Gas, because it won't pay a dividend. All that makes the business very hard to value."

The company is still negotiating to lessen its pounds 30bn "take-or-pay" burden from contracts to buy gas it no longer needs at inflated prices. City experts have estimated it will cost pounds 1bn for Centrica to buy its way out of these liabilities.

Under the split, 1.7 million British Gas shareholders, including many "Sids" who have held the stock since privatisation in 1986, received one Centrica share for every share they held.