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Friday, August 1, 2008

EDF May Sell U.K. Nuclear Sites to Win British Energy

Electricite de France SA, the world's largest owner of nuclear power stations, may sell U.K. atomic sites to gain approval for the purchase of British Energy Group Plc, two people with knowledge of the talks said.

The British government will ensure Paris-based EDF allows fair competition among developers of reactors after buying the U.K.'s largest nuclear plant owner, according to the people, speaking yesterday, who declined to be identified because the negotiations are private. Francois Molho, a spokesman for Electricite de France in Paris, declined to comment.

The French utility is close to an accord to buy British Energy, including the British government's 35.7 percent stake, for about 12.5 billion pounds ($24.8 billion), three people said this week. Gaining control of the East Kilbride, Scotland-based, company, which operates eight U.K. atomic plants, would give EDF most of the sites on which new ones can be built amid a British nuclear revival.

``There is no guarantee that EDF will have exclusive use of the sites,'' said Florence Roche, a fixed-income credit analyst at Societe Generale SA in Paris. Without that exclusivity, it makes the deal even more expensive, she said yesterday. ``At the level of valuation reported by press, the assets are not very attractive.''

U.K. Energy Minister Malcolm Wicks said in a Bloomberg Television interview on April 17 that Britain is wary of a monopoly company or business group having control of all new nuclear power stations in Britain. The government, which is reviving nuclear power to replace older plants due to shut down, is identifying suitable sites for new reactors.

Nuclear Report

A report produced for the government by Jackson Consulting recommended that any new capacity should be developed first at one of the country's existing nuclear sites. Those are owned by British Energy and the U.K. Nuclear Decommissioning Authority, an agency set up to run and clean up older plants.

Those locations already have much of the infrastructure required and grid connections, and local communities may be more likely to have the required skill base.

EDF recently bought land adjacent to the Wylfa power station, owned by the Nuclear Decommissioning Authority, as a backup plan in case it misses out on British Energy. The French power producer has said it wants to build as many as five nuclear reactors in the U.K.

Centrica Role

British Energy in November signed an agreement with the national grid operator to connect six new nuclear reactors on four southern England sites to the country's power transmission network from 2016.

Centrica Plc may acquire about 25 percent of British Energy as part of the transaction, the people said. The takeover may be discussed by Electricite de France directors at a board meeting today, they added.

EDF said today it will hold a press conference in Paris at 8:45 a.m. local time tomorrow. Francois Molho, a spokesman for the company, declined to comment on the reason for the previously-unscheduled event. EDF also releases earnings tomorrow.

The proposed price EDF may offer is about 775 pence a share, two of the people said this week. That's 8 percent above yesterday's close of 720 pence and 27 percent more than March 14, the trading session before British Energy said it may receive an offer. On July 29 Dow Jones reported EDF would offer 765 pence a share for the government's stake, citing a person familiar with discussions on the deal.

Contingent Value

The Financial Times reported today that part of the EDF bid will be in the form of contingent value rights, securities which have future payouts dependent on the performance of British Energy after it has been taken over. It said these securities are less well-known to U.K. investors than to those in the U.S. and continental Europe, and may complicate negotiations.

The Financial Times said EDF's proposed bid includes an all-cash alternative, which would be at a lower level than the potential value of the option of cash plus CVRs.

EDF rose 1.59 euros, or 2.9 percent, to 55.88 euros at 12:55 p.m. in Paris trading. British Energy fell 3.5 pence, or 0.5 percent, to 716.5 pence in London.

Prime Minister Gordon Brown said on June 22 in Jeddah, Saudi Arabia, that he backs new atomic plants to meet demand. Brown favors nuclear power because it emits less carbon dioxide, the gas blamed for global warming, than gas and coal-fed stations.

New Plants

Among the first in line to acquire potential reactor sites in the U.K. may be GDF Suez SA, the world's second-largest utility by market capitalization.

Chief Executive Officer Gerard Mestrallet has said the Paris-based company wants to own and operate ``third- generation'' reactors in western Europe and would be interested in developing generators in Britain.

Suez SA, which combined with Gaz de France SA on July 22, has held talks with British Energy on possible sites for new atomic plants, Mestrallet has said. Suez announced May 23 it had ended talks on a possible bid for British Energy to focus on completing the long-planned merger with Gaz de France.

GDF Suez and Electricite de France are backing the European Pressurized Reactor design developed by Areva SA for new generators.

(Source: Bloomberg)

1 comment:

Anonymous said...

The premium doesn't sound that great for current British Energy share holders.

The government of the UK obviously wants to move the deal through because of EDF's operational abilities.