British Energy's largest investor presses for its merger with Centrica

· Tie-up with British Gas owner 'obvious solution' · City says EDF will have to pay more than £8 a share
David Teather
The Guardian,
Monday August 25 2008

The biggest shareholder in British Energy is pressing the nuclear power generator to merge with Centrica, the owner of British Gas, it emerged yesterday.
Invesco, which owns a 15% stake in British Energy and a 5% stake in Centrica, told a newspaper that a merger between the two would be the "obvious solution" for the future of the companies.
Neil Woodford, the head of investment at Invesco, has already taken his proposal to both companies and is stepping up his campaign to broker a deal by meeting tomorrow with the Shareholder Executive in Westminster, which manages the government's assets. The government still owns 36% of British Energy and will be instrumental in any deals over the nuclear firm's future.
British Energy came within a whisker of agreeing terms for a £12bn takeover by the French utility Électricité de France but the deal was blocked by two leading shareholders, including Invesco, who argued that the price of 765p a share was not high enough.
Woodford believes that EDF could still play a role. He told the Sunday Telegraph: "A combination of British Energy and Centrica solves the problems facing both companies today. Together they can work out a joint venture with EDF to build nuclear sites."
EDF has said it remains committed to building new nuclear generators in Britain but it remains unclear whether British Energy and the French utility can break the current impasse. At its results two weeks ago, British Energy only said that it was continuing to hold advanced discussions.
Centrica confirmed shortly after the EDF deal was scuppered that it might revive proposals to merge with British Energy, creating a company worth £22.5bn, first mooted at the beginning of the year.
The British Gas owner is keen to get involved in nuclear power and had looked at the prospect of an all-share offer for British Energy but the proposals were put on ice when it appeared that one of the big European utilities might come in with a cash bid.
When the EDF bid did emerge, Centrica agreed to invest as a junior partner and was thought to be planning to take a 25% stake.
In a statement issued in the first week of August, Centrica said that in the event of the EDF deal falling apart it would consider a number of options regarding British Energy.
It said they might include long-term power contracts, working in partnership with the firm on new-build projects or "a possible merger of Centrica with British Energy, if terms could be agreed and all parties are fully supportive".
The government preferred the EDF bid because it preferred to take cash rather than shares. But there is now a suggestion that Centrica could revise its offer so that cash is offered to the government and shares to other investors.
Analysts reckon that the state-controlled EDF would need to make a bid of more than £8 a share to win the backing of British Energy shareholders and possibly as much as £9 - a far stretch from its initial approach of less than £7.
British Energy two weeks ago said profits had fallen from £253m to £129m in the three months to the end of June, the first quarter of its financial year.
It blamed lower output and the higher cost of remedial work at two nuclear stations for the decline. But the company said it was encouraged that the role for nuclear new-build within Britain's energy policy was now firmly established.
British Energy owns eight nuclear power stations and one coal-fired plant. Problems at a number of the nuclear plants have forced it to cut output although the company claims to have made "good progress" in resolving the issues that have dogged the plants.