British Energy rejects EDF again

1 August 2008

British Energy has turned down a revised takeover offer by EDF of 765p per share – a bid that would have valued the UK nuclear generator at £12 billion.

The 1 August announcement came less than two months after British Energy said it had rejected the takeover proposals that it had received in May. Then, the French utility was thought to have been the only company to have made a firm bid, priced around 700p per share.

The UK government, which owns a 35.2% stake in British Energy, supported the recent offer, but other shareholders considered the offer to be too low. Invesco and Prudential, which together account for a 22% stake in British Energy, argued that since oil and gas prices were likely to remain high, the company was in fact worth far more than EDF’s offer.

Commenting on the failure to reach an agreement, John Hutton, the government’s secretary of state for business, said: “I am disappointed that talks between British Energy and EDF have not yet been successful. We thought it was a good deal and we were ready to accept.”

Noting that EDF is the largest nuclear operator in the world, Hutton added that the takeover would have been “a sensible way to take forward new nuclear plans in the UK.”

EDF had been in talks with UK utility Centrica to form a partnership in the takeover. Under the plan, Centrica – which owns British Gas and is already a buyer of electricity from British Energy – was to take a 25% stake.

Involving Centrica in the deal would have helped allay the inevitable fears associated with the country’s commercial nuclear fleet coming under foreign ownership. For its part, Centrica does not produce as much natural gas and power as it sells and wants to reduce the amount it needs to buy in the wholesale markets. Consequently it is looking for nuclear and renewable assets to reduce its exposure to natural gas prices.

Although British Energy is currently benefiting from strong electricity prices, EDF’s interest in the utility is primarily a result of its ownership of what are considered to be the best sites for new nuclear build. EDF has announced its intention to build a fleet of EPRs in the UK, with the first unit starting up at the end of 2017.

However, EDF ownership of all the British Energy sites would have raised significant competition problems, as several other utilities have expressed an interest in participating in new nuclear build in the UK. Media reports have said that, in anticipation of the sale of British Energy, the government’s Department for Business, Enterprise and Regulatory Reform was about to announce how the Nuclear Decommissioning Authority’s (NDA’s) sites could be made available to allow competitors into the new build market.

Now that the takeover of British Energy has fallen through, this leaves the door open for the company to negotiate with several utilities on a site-by-site basis, which would have the advantage of avoiding monopoly siting issues.

Alternatively, utilities could get access to sites for new build without needing to come to a settlement with British Energy. One way is to negotiate with the NDA for access to its sites. Another possibility is to acquire land in the vicinity of existing nuclear sites, as EDF is reported to have done at Hinkley Point and Wylfa.

British Energy currently operates 14 AGRs and one PWR, which are spread over eight UK sites. It also owns development land next to the NDA-owned Bradwell Magnox site.

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