Centrica dangles £4bn cash to clinch stake in British Energy

Mark Kleinman
Last Updated: 11:23pm BST 09/08/2008

Centrica is planning to offer a cash sweetener for the Government's stake in British Energy in an effort to secure its backing for a £22.5bn merger with the nuclear power generator.
The owner of British Gas is galvanising up to £4bn to cover the cost of part or all of the stake in the hope that cash will persuade the Government to allow it a place in the deal.
Centrica is fighting against resistance from ministers to the idea that it could form a national energy champion in the face of overwhelming support in Whitehall for a takeover of British Energy by EDF, the utility which is majority-owned by the French government.

After admitting last week that it was looking to revive a merger with British Energy which had been rebuffed earlier in the year, Centrica has in recent days decided that it needed to re-think its paper-based proposal and offer cash for part of the Government's 35 per cent shareholding in the nuclear generator.
Last night, it was unclear exactly how such an offer would be structured. However, the fact that Centrica's board is looking closely at the option underlines its determination to play a central role in the outcome of the protracted auction of British Energy.
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City sources say Centrica is privately unhappy that ministers have demonstrated their opposition to a deal between the two British companies, and believe a cash offer to the Government which could help replenish the Treasury's depleted coffers may yet find favour in Whitehall.
Last week, in response to Centrica's confirmation that it remained interested in a merger with British Energy, a Government official was quoted as saying that such a proposal would not be "receiving the support of this party. British Energy needs more [new nuclear] expertise, experience and knowledge technologies. Centrica's not going to provide that."
Led by Sam Laidlaw, its chief executive, Centrica believes some form of partnership with third parties such as EDF to provide nuclear new-build expertise would still allow the British company to assume the leading role in a takeover of British Energy.
Until earlier this month, Centrica had been expected to take a stake of about 25 per cent in British Energy as part of a deal led by EDF. That was to have been an agreed takeover with the backing of both British Energy and the Government. However, the talks stalled because the proposed 765p-a-share offer was rejected by Invesco and M&G, two of British Energy's largest institutional investors, on the basis that the price was too low and structured in too complicated a fashion.
While ministers are keen to resurrect the EDF-led deal, it remains unclear whether their efforts will be successful.
In its statement last week, Centrica said it could propose to British Energy "long-term power off-take arrangements, Centrica participating in British Energy's potential new nuclear partnerships or a possible merger of Centrica with British Energy, only if terms could be agreed and if all parties are fully supportive."
Centrica wants at least a minority interest in British Energy because the increased volatility of wholesale energy markets has forced up the cost of securing the gas and electricity it requires to supply to British customers. That has led to a political backlash and growing calls for a windfall tax on utility firms.
Last night, Centrica declined to comment further on its intentions.