Nuclear group strikes takeover deal with EDF

· French firm's offer could value company at £12bn· British Energy acquisition faces competition battle
Mark Milner, industrial editor
The Guardian,
Saturday July 26 2008

France's EDF and Britain's nuclear generator, British Energy, are understood to have reached agreement in principle on the terms of an agreed bid.
Although work on an offer is continuing, the French company is understood to be keen to finalise a deal next week, ahead of publication of its latest figures on Friday.
The offer is expected to be pitched at around 775p a share, which would value British Energy, in which the UK government has a 35% stake, at some £12.4bn.
EDF is in negotiations with Centrica, the parent company of British Gas, about the possibility of the UK company taking a minority stake, thought to be around 25%, in British Energy after a successful EDF offer.
Centrica is keen to increase its own electricity generating capacity and to be part of the building of new nuclear capacity while its inclusion in a deal might help to offset any criticism that a key British asset was being sold to a state-owned French company.
Last night none of the companies was prepared to comment.
On Thursday, British Energy said it was in advanced discussions with another company, though it did not name its suitor, pushing its shares up 6%. On Friday British Energy shares were slightly lower on the day at 726.5p, well below the expected price, suggesting there may still be concerns about a last minute hitch.
Setting a valuation on British Energy has proved tricky for the negotiators. The company was pushed into the bid spotlight when the government gave the green light for a new generation of nuclear power generators at the beginning of the year.
British Energy has eight nuclear power stations as well as a coal-fired station, and its existing atomic sites were immediately seen as the most likely places to build new capacity.
That has given the company a hard-to-value combination of existing non-fossil fuel generation, at a time of rising electricity prices, and the future value of the sites as places to build new generation nuclear plants.
A number of European energy companies, including Spain's Iberdrola and RWE from Germany, are understood to have looked at British Energy. EDF has already said it would be keen to be involved in the construction of a number of new nuclear plants in the UK.
The success or otherwise of Britain's nuclear build programme is seen as having an important bearing on such development in other countries, in Europe and elsewhere. In the UK, the government is keen to promote nuclear power as part of a portfolio of energy sources, including gas, coal and renewables, in order to increase security of supply and reduce the impact of rising fossil fuel prices on Britain's energy bills.
EDF has already had a bid of more than 680p rebuffed but even a significantly higher offer may not be seen as enough by some investors.
"Based on $100 a barrel oil until 2012 and $70 a barrel thereafter, we value British Energy's existing assets at 760p [a share]," Evolution analyst Lakis Athanasiou said. He added that though an offer of about 775p would be a good one for the existing assets, it "does not include any price for new nuclear".
EDF's acquisition of British Energy would also raise competition issues. British Energy is the largest of the so-called merchant generators in the UK — electricity producers which sell their output into the wholesale market and do not have a retail customer base.
On the other hand, EDF has its own generating capacity, amounting to slightly over 7%, as well as more than five million residential and small business customers.
Other merchant generators are concerned that allowing EDF to acquire British Energy would increase the amount of UK electricity capacity held by vertically integrated companies.