UK would block British Energy deal

By Rebecca Bream and Jean Eaglesham in London
Published: August 4 2008 23:31

The UK government would block any attempt by Centrica to merge with British Energy, the nuclear group, after the owner of British Gas said it was considering the idea.
Centrica said on Monday that it would pursue the idea of a merger with British Energy if a £12bn ($23.5bn) proposed takeover by EDF of France does not go ahead.

After media speculation about its role in the situation prompted the UK Takeover Panel to demand a statement, Centrica confirmed that it was in talks with “a third party”, known to be EDF, about taking a minority ownership position in British Energy if EDF’s takeover goes ahead.
If EDF’s offer does not succeed, Centrica said it would look at alternatives, including signing long-term power supply contracts with British Energy, taking part in the group’s new nuclear projects, or “a possible merger of Centrica with British Energy, only if terms could be agreed and if all parties are fully supportive”.
But a UK senior government official said any deal between Centrica and British Energy would require the approval of the state, as it owns a 35 per cent stake in British Energy. “It’s not receiving the support of this party,” the official said. “British Energy needs more [new nuclear] expertise, experience and knowledge technologies – Centrica’s not going to provide that.”
An EDF takeover remains the government’s preferred option as this would allow it to raise much-needed cash, and ministers are working behind the scenes in the hopes of facilitating a deal.
The French group was poised to announce its 765p-a-share cash bid for British Energy last Friday, but had to scrap its plans late on Thursday night after two of British Energy’s largest institutional shareholders – Invesco and M&G – rejected the offer as too low.
Although relations between EDF and British Energy have been soured by the last-minute collapse of the deal, there appeared to be hope on both sides yesterday that a deal could still go ahead. One person close to negotiations said that the government could drop its condition to only back EDF’s offer once it gains acceptance from 50 per cent of British Energy shareholders, making Invesco and M&G’s 22 per cent block less influential.
Another person said EDF could still try to win over Invesco and M&G. Pierre Gadonneix, EDF chief executive, has been given a mandate to raise his group’s bid to 790p a share.
Additional reporting by Ben Hall in Paris
Copyright The Financial Times Limited 2008