British Energy still on Centrica’s agenda

By Rebecca Bream
Published: August 3 2008 16:55

Centrica, owner of British Gas, plans to revive the idea of an all-share merger with British Energy if EDF’s proposal to buy the UK nuclear group falls through.
EDF’s plans to buy British Energy and become the UK’s largest power generator were thwarted at the 11th hour last week when Invesco and M&G, two of British Energy’s largest shareholders, rejected EDF’s bid of 765p a share as too low.

After recriminations on Friday about who was to blame for the last-minute collapse of the deal, both sides are expected to take some time off and it was not clear yesterday whether EDF would come back with a higher offer.
Earlier this year, Centrica proposed an all-share merger with British Energy. This plan was rejected because the UK government, which owns 35 per cent of British Energy, preferred the idea of a cash bid as this would allow it to exit its investment and raise much-needed funds. British Energy held talks with energy companies including RWE, Iberdrola and Vattenfall, but EDF emerged as the front-runner in May after making an initial cash offer of about 680p per share.
Several institutional investors that own shares in Centrica also hold stakes in British Energy, including Invesco, which owns 5 per cent of Centrica and 15 per cent of British Energy.
A person close to Centrica said the group would be visiting its investors in the coming weeks following the publication of its results last week, and it was “inevitable” that the question of reviving Centrica’s merger plan with British Energy would come up.
But the person said that the plan was in its early stages and would only proceed if talks between EDF and British Energy on a cash takeover were conclusively ended. It could be several weeks before it is clear whether a deal between EDF and British Energy can be salvaged, according to a person close to EDF.
Centrica needs to increase its upstream gas and power assets to reduce its exposure to the volatile wholesale markets.
If EDF’s bid for British Energy succeeds, the French group is considering selling a minority stake in the nuclear group to Centrica, as well as offering it a long-term power supply contract.
Copyright The Financial Times Limited 2008