It is now or never for cross-Channel nuclear fusion

By Paul Betts
Published: September 5 2008 03:00

The lights seem to be flickering again in the on/off negotiations between EDF and British Energy. Indeed, the French state-controlled electricity group may well be at last inching towards a deal to buy the UK nuclear operator - although anything could still happen.
The two companies were only hours away from announcing a deal this summer when the whole thing fell apart on the opposition of two of British Energy's big shareholders - investment funds Invesco and M&G.
In recent weeks the British government, which has a stake of about 35 per cent in the nuclear group, has been sending out loud messages that it wants a deal with EDF, and quickly.
EDF, too, wants a deal. There could be no better time for the French group to extend its nuclear reach abroad and particularly in the UK, which promises to be one of the most active nuclear markets in the near future. Several recent studies by management consultancies such as the Boston Consulting Group (BCG) also argue that there is no time like a downturn for buying new businesses and expanding into new markets.
It may seem obvious, but a BCG report shows companies with the financial capacity to pull off targeted mergers to reinforce their core businesses can pick up real bargains. But there are some significant risks. A large number of deals tend to fail if they take a company into a completely new business or into unfamiliar countries.
Should it buy British Energy, EDF does not appear to be facing these risks. First, it is already well established in the UK. For many years it has been one of Britain's biggest electricity suppliers. Second, few can doubt the nuclear credentials of the operator of no fewer than 58 nuclear plants in France.
Indeed, it is also now enjoying a few additional advantages thanks to the recent collapse of the pound and the decline in oil prices. The pound's fall gives EDF more room for manoeuvre on price, while the appetites of British Energy's two big private shareholders should be tempered by the weakening of energy and commodity prices.
So it is really now or never for EDF and British Energy's shareholders.
German signal failure
It also seems to be now or never for the long-awaited partial privatisation of Deutsche Bahn's train operations. The issue has agitated German public opinion and politicians alike for the past 14 years.
But after finally securing the reluctant support of both governing coalition and opposition parties to float a 24.9 per cent stake in DB Mobility Logistics AG - the Bahn's transport, logistics and services businesses - Hartmut Mehdorn, chief executive, confirmed the stock market listing would take place late next month.
Given the weakness of financial markets, many had suggested the railways could delay the initial public offering - Germany's biggest IPO in eight years, with the government hoping to raise at least €5bn ($7.1bn) - and wait for better times.
With elections next year, the chances of pulling off such a politically difficult flotation also looked pretty slim. Indeed, the feeling at the Bahn is that it has a narrow window of opportunity to get the IPO on the rails. In other words, late October or November or otherwise perhaps never.
Under the circumstances, one would expect the Bahn to be doing everything to ensure the final leg of its long journey to the market is as smooth and uncontroversial as possible. It seems to be doing the opposite.
It has managed to spark a public outcry by deciding to raise ticket prices by 3.9 per cent in mid-December and imposing a surcharge if tickets are bought over the counter rather than on the internet or from vending machines. The company defends the increases on the grounds it is facing higher personnel and energy costs.
But the move, at the time when the purchasing power of ordinary Germans is under pressure, is largely seen as an effort to enhance the company's profitability to lure investors to its imminent IPO.
In its efforts to attract big institutional investors, it has provoked further confusion and controversy by seeking out Chinese and Russian sovereign wealth funds. Peer Steinbrück, Germany's finance minister, confirmed this week the China Investment Corporation was interested in a stake.
The problem is that Berlin has also had to play to the public gallery by pledging to defend German champions from the appetites of sovereign wealth funds. It recently amended its foreign trade act to give itself special powers to block undesirable investments by non-European Union companies. So while the Russian and Chinese interest in taking a small stake in the Bahn hardly qualifies as a national threat, it would perhaps have been wiser to wait for the IPO to get on the rails before raising the matter.
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Copyright The Financial Times Limited 2008