Centrica muscles in on EDF deal

Nick Clark@MrNickClark
Sunday 23 October 2011 07:11

Plans by Centrica to buy a quarter of British Energy were welcomed by the market yesterday after the latter's long-awaited £12.5bn takeover by its French rival EDF was agreed.

The companies described the deal as a "milestone" for nuclear development in Britain. The sell-off was backed by the Government, which stands to make £4.5bn from its stake in British Energy. The Prime Minister, Gordon Brown, said: "This deal is good value for the taxpayer and a significant step towards the construction of a new generation of nuclear stations to power the country."

Subject to shareholder and regulatory approval, EDF – which is 85 per cent owned by the French government – will take over British Energy's eight nuclear power plants in the UK. It also plans to build four new reactors in Britain.

Centrica, which owns British Gas, said it had signed a memorandum of understanding with EDF to take 25 per cent of the power generated by the enlarged group once the deal was completed. At a joint press conference in London, EDF and British Energy confirmed that the UK group's board had urged investors to accept the takeover. EDF, the world's biggest nuclear power firm, is offering British Energy shareholders either 774p per share in cash or 700p per share in cash plus one nuclear power note – an instrument relating to electricity prices.

Tina Cook, an analyst at Charles Stanley, said of Centrica's involvement in the deal: "This is very positive news for Centrica. There was positive reaction in the market today and speculation over its participation has seen its share price rise this week."

Centrica's proposed deal, worth about £3.1bn, will give it the right to 25 per cent of the uncontracted output of British Energy's existing generators and 25 per cent of its profits. It will also be able to participate in EDF's power plant building, and intends to fund its acquisition through debt and equity. Ms Cook said the tie-up would allow Centrica to rely less on volatile wholesale prices for gas and electricity, which meant it was less likely to raise utility bills to protect its margins.

Scott Philips, of Dresdner Kleinwort, said the terms of the deal were good for Centrica and went "a long way in addressing its long exposure to upstream prices".

EDF approached British Energy last month with a 765p per share bid, valuing it at £12bn. But the takeover was scuppered by the utility's biggest shareholder, Invesco Perpetual, along with M&G, another significant investor, who said the price was too low. Invesco then urged British Energy to merge with Centrica. Yesterday, the companies said Invesco had agreed to sell its 14.8 per cent stake to EDF.

British Energy shrugged off accusations that another prized British asset had been sold off to foreign owners. Sir Adrian Montague, the chairman, said: "We look at the quality of service companies provide, rather than where they are based. Overseas ownership is not a worry."

EDF also attempted to quell fears of job cuts, saying it was committed to British Energy's workforce of 6,000. The British Energy chief executive, Bill Coley, added: "I'm not worried that British Energy will lose jobs, it is whether we can gear up fast enough for the challenges ahead."

British Energy was created in 1996, when eight nuclear reactors were privatised by the Conservative government.

Where the new nuclear plants will be built

The government has turned to nuclear power as the key plank of its plans to reduce Britain's reliance on imported fossil fuels for generating electricity.

EDF will continue to operate British Energy's existing nuclear plants at Hunterston in Ayrshire, Dungeness in Kent, Heysham in Lancashire, Hartlepool, Torness in East Lothian, Hinkley Point in Somerset and Sizewell in Suffolk. It also intends to build four new reactors with a power generating capacity of 6.4 gigawatts. Two will be built at Hinkley Point and two at Sizewell. The reactors at Hinkley should be operational by 2017.

EDF has agreed with ministers to sell land at Bradwell in Essex, and alongside existing stations at either Dungeness or Heysham, to other potential nuclear operators. A spokesman for the Government said: "This move is expected to accelerate development of new nuclear power stations by making desirable sites available to at least one further potential operator."

The Nuclear Decommissioning Authority will also auction some sites suitable for nuclear plants, including Wylfa in north Wales, Oldbury in Gloucestershire and Bradwell. It is still considering whether to sell land at Sizewell. The Prime Minister, Gordon Brown, said yesterday: "Nuclear is clean, secure and affordable; its expansion is crucial for Britain's long-term energy security, as we reduce our oil dependence and move towards a low carbon future."

Pierre Gadonneix, the chairman and chief executive of EDF, said the £12.5bn deal to buy British Energy put the company "at the centre of the global nuclear renaissance" and added: "In the next 10 to 20 years, Britain will be the country where there will be the greatest number of nuclear developments."

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