Centrica holds talks with RWE to join £11bn British Energy bid

Centrica has intensified talks with RWE that could see the companies launch a joint £11bn bid for British Energy by the end of this month.

The owner of British Gas has been in discussions with both RWE, which operates as nPower in the UK, and EDF about joint offers for the owner of the UK's nuclear power plants.

The revelation that RWE had already tabled a solo £11bn bid and had been given access to British Energy's data room by its bankers at Rothschild provided fresh impetus to negotiations, it emerged yesterday. The German energy giant is thought to have secured agreements from Deutsche Bank and Barclays to provide debt financing for the offer. Second-round bids are thought to be due by the end of April.

With neither the financial firepower nor nuclear expertise, Centrica can't do a deal on its own. Instead, it is trying to sell itself as the kingmaker in the scrum for the operator of substantially all of the UK's nuclear power plants. Centrica thinks that by bidding hand-in-hand with one of the clutch of continental power groups looking at the company, a foreign takeover would be more palatable to the Government and the public. It would most likely be a junior equity partner in any deal. British Energy shares rose 5.2 per cent yesterday to close at 739.5p.

For Centrica, such a deal is attractive because it would put it at the centre of the process of building new nuclear power stations in the UK – British Energy owns the most desirable sites for new build. The UK's largest retail supplier, Centrica has been aggressively trying to build up its own generation capabilities to reduce its dependence on wholesale markets, which are highly volatile. British Energy currently accounts for about a fifth of the country's electricity and the new nuclear build programme will likely see that proportion increase.

It is unclear, however, whether Sam Laidlaw, Centrica's chief executive, will be successful in convincing the Government that a British element to a foreign takeover is necessary. Whitehall has hired UBS to advise it on the possible sale of its 35 per cent stake in the group. The Government's stance on whether a British partner is necessary could determine whether RWE, EDF or other suitors choose to bring Centrica in to a deal.

There is concern over how the building of the country's next generation of nuclear reactors is handled. British Energy began sounding out potential partners for new reactors a year ago, a process that could be scrapped if it comes under new ownership. The Government is keen to avoid a situation in which all of the country's new plants are built and controlled by one company. A source close to the situation said: "They don't want to see a monopoly, but there are plenty of measures or conditions they could put in place to ensure that there is access to other players for new build."

Mr Laidlaw approached Bill Coley, head of British Energy, about two months ago with an informal offer to buy the company in an all-share deal. Since then, Centrica shares have fallen more than 7 per cent while the debt markets have worsened, making a solo buyout of the group a financial impossibility.