BE gets EC agreement but faces shareholder rebellion

27 September 2004

British Energy (BE) announced on 21 September that it would delist from the stock market, in a measure intended to stop rebel shareholders from derailing its restructuring plan. The delisting is due to take effect on 31 October. BE had previously challenged rebel shareholders in the US courts but the plea was thrown out.

BE’s so-called ‘agreed restructuring’ was given the go-ahead by the European Commission’s (EC’s) state aid regulators on 22 September. Under that plan the government will take over financial responsibility for nuclear decommissioning, receiving in return 65% of the company’s cashflow after charges. The company will separate its nuclear and non-nuclear businesses, creating three new companies – a nuclear operator, an operator for its coal-fired plant at Eggborough; and a direct electricity sales company – so that the state aid could not be used to cross-subsidise. Other conditions also apply.

The plan would also see a debt-for-equity swap that would leave creditors owning most of the company. Existing shareholders would see their ownership in the company plummet to 2.5%, with warrants for a further 5%. Some shareholders have accepted the deal – not least because, with no alternative plan, rejection of the agreed restructuring would see the company go into administration. However, a group of shareholders led by Polygon Investment Partners and supported by US investment fund Brandes, which hold 5.6% and 6% of BE’s shares respectively, has rebelled against the deal. Polygon wants shareholders to retain 30% of the company, and it argues that electricity price rises since the restructuring was agreed mean BE can offer its shareholders a better deal. The company in fact recorded an operating profit of £57 million in the 2003-4 financial year, but it had to reduce its target output for the year from 64.5TWh to 61.5TWh after unplanned outages and extended maintenance.

In September, Polygon forced BE to schedule an extraordinary general meeting for 22 October in the hope that shareholders would vote down the restructuring plan. Whether Polygon can persuade other shareholders to dump the deal remains to be seen. BE’s current largest shareholder is Stark Investments, which is also a large bondholder. What is more, the Financial Times reported that bondholders have started legal action against Polygon and Brandes, seeking ‘substantial damages’ if they succeed in making BE break the commitments in its restructuring.

BE said that the deal is legally binding. If the shareholders block the agreement, the company’s creditors will call in the £1.3 billion they are owed and the company will go into administration. Announcing the delisting, BE chairman Adrian Montague said that if Polygon was successful in blocking the deal, “unsecured creditors may represent only a small fraction of their unsecured liabilities and there is highly unlikely to be any return to shareholders.”

BE’s share price dropped from £0.25 (25p) to around 15p after the delisting was announced – a substantial fall, but still far above its lowest value in January this year, when shares were trading at around 4p.




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