Drax rejects £1.9bn US bid and goes for float

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The Independent Online

Drax, the owner of Europe's largest power station, said it would press ahead with a flotation of the business after declaring that a £1.9bn takeover bid from a US consortium had "significantly undervalued" the company.

The group, which owns the 4,000 megawatt Drax coal-fired station near Selby, North Yorkshire, said that it was worth nearer £2.2bn - some £300m more than the offer tabled a week ago by Constellation Energy and the private-equity firm Perry Capital.

Drax said it planned therefore to continue preparations for a stock-market listing, scheduled for December. However, it carefully avoided closing the door on the US consortium, saying that it would maintain a "dialogue" with Constellation and Perry and would assess any further proposals it received based on their "value, deliverability and timeliness".

A statement from Drax added: "Consistent with its previously stated position, the board remains committed to delivering shareholder value, and to the possibility of this arising through the pursuit of other strategic alternatives to the proposed refinancing and listing."

Drax, which was taken over by its banks in 2003, after the previous owner AES went bust, said its calculation of a £2.2bn valuation was based on the price at which securities linked to the company's debt were trading.

Sources in the Constellation/Perry camp responded that recent trades in these securities had been very small and had gone through the books of Deutsche Bank which is also Drax's financial adviser. Drax retorted that any suggestions its financial advisers were manipulating the price of the company to give it an unrealistic valuation were "cobblers".

Constellation, which is being advised by Lazard, argues that its cash offer will avoid Drax's owners going to the expense of a public share offering. A spokesman said it was "disappointed that the Drax board had not agreed to open its books" but was still intent on pursuing its interest.

Drax supplies about 7 per cent of Britain's electricity needs and has been operating for more than two decades. In 1988, it became the first power station in the UK to be fitted with equipment to cut emissions of sulphur. This will enable it to continue generating when tough new environmental curbs on coal-fired power stations come into force in 208.

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