French polish on deal after long wrangle

By Peggy Hollinger in Paris
Published: October 6 2008 03:00

Pierre Gadonneix believes one should "live every day as if you are eternal. Otherwise life becomes impossible".
But there must have been days when the chairman of EDF felt himself a powerless mortal amid the endless wrangling over the French electricity group's bid for British Energy, the UK's nuclear operator.
Now British Energy has finally recommended a sweetened €15.7bn ($21.6bn) offer, Mr Gadonneix can allow himself a small smile of satisfaction.
"I believe that in the 10 years to come, the UK will have the biggest number of nuclear reactors under development in Europe," he told the Financial Times. "British Energy is a great opportunity for EDF."
The French electricity group, 85 per cent state-owned, is the acknowledged world leader in operating nuclear power stations. Its 58 reactors generate almost 80 per cent of France's electricity, more than any other country except Lithuania.
But, until now, EDF has failed to take its nuclear expertise abroad in a big way. Though it has stakes in leading conventional utilities in Italy and Germany, most of its profits come from its French nuclear operations.
The acquisition of British Energy, operator of eight British reactors, will change that. Now, more than half of its sales are international, giving it a big head start in the one European market outside France that will build new reactors.
But the deal is sparking controversy. UK consumers mutter that they will be squeezed to subsidise French power bills, already among Europe's lowest due to government imposed tariffs. Across the Channel, Mr Gadonneix fends off allegations that French taxpayers will pay for their British cousins at the expense of investment at home.
"I have the same question from both sides," said Mr Gadonneix. "It proves we have no intention of using one to subside the other."
Mr Gadonneix argues that the deal is a unique opportunity to bring even more competition into one of Europe's most open energy markets. "Our development in the UK reinforces security of supply and brings competition through new capacity. This should lower prices in the long term."
But some believe EDF could control up to 27 per cent of UK production and that is before it builds the four 1600MW EPR reactors it plans in the UK. Partly to ease such concerns and help cut the acquisition cost, EDF is talking to Centrica of the UK about selling a 25 per cent stake.
Mr Gadonneix insists that EDF could keep the stake - or sell to whoever it wants. "We are in discussions with Centrica, but they are not the only one interested. Everyone is."
The British Energy deal is a welcome coup for Mr Gadonneix, who has watched European rivals muscle up through mergers and acquisitions. It answers critics who have accused him of hesitating while the sector consolidates. Mr Gadonneix argues he has, instead, been careful only to target promising nuclear markets. Nonetheless, he must still prove that his ambition to make EDF a world leader in the nuclear renaissance will not be stymied in his second international market of choice, the US.
EDF's plan for four EPRs in the US was thrown into doubt by a bid for American partner Constellation Energy from billionaire Warren Buffett. Now EDF is weighing whether to make a counter offer, in partnership with KKR, at a time of record investment requirements.
Mr Gadonneix is sanguine, despite the credit crunch. "We will still have room for manoeuvre," he says. "We are probably the company with easiest access to credit."
A decision will come in the "next few weeks," he says. Nonetheless he adds: "I do not exclude disposals."
EDF will be forced to accept changes in its home market, making international success even more imperative. The merger of rival Suez with Gaz de France has created a formidable competitor, now a favourite to build France's second new generation nuclear reactor that would break EDF's exclusive hold on nuclear power in France.
Mr Gadonneix will fight any such decision, but he does admit: "EDF will lose market share in France. That is certain."
As the 65-year-old EDF boss' mandate is due to end in 2009, he seems determined to resolve remaining questions over the group's international expansion. EDF hopes to hear in the coming days whether it has been chosen to build reactors in South Africa, another of the world's promising nuclear markets.
Though he may argue it is pointless to count the days, the governmentappointed EDF boss knows the clock is ticking. "One day I will leave," he says. "Even if I think I am eternal, there are those who think that it is not true."
Copyright The Financial Times Limited 2008