EDF Buys British Energy to Expand in Nuclear Power

Electricite de France SA, the world's largest operator of nuclear reactors, agreed to buy British Energy Group Plc for 12.5 billion pounds ($23 billion) after raising its offer for the U.K. power producer.

EDF will pay 774 pence a share for the East Kilbride, Scotland-based utility, according to a statement today. That's 35 percent above the stock's closing price on March 14, the last trading session before British Energy said it may receive an offer. Centrica Plc, the U.K.'s biggest energy supplier, is in talks to take a 25 percent stake in the acquired company.

The French utility will gain control of eight British nuclear plant sites where it plans to build four new reactors. The purchase by EDF, whose 58 nuclear units produced 77 percent of France's electricity last year -- the highest in the world -- comes as Britain's Prime Minister Gordon Brown seeks investment in atomic energy.

``It kickstarts the government's drive to facilitate new nuclear build,'' Tina Cook, an analyst at Charles Stanley & Co. in London, said today by phone. ``British Energy's existing assets are aging. EDF will contribute its expertise, as well as replacing those assets.''

British Energy, the country's largest power producer, jumped as much as 6.6 percent in London and traded at 769 pence as of 8:15 a.m. local time. Centrica increased 3.6 percent to 338.25 pence. EDF rose 4.8 percent to 52.54 euros in Paris. British Energy is 36 percent owned by the U.K. government while EDF is 85 percent state-owned.

Shield Customers

Centrica will also pay 774 pence a share for its stake, according to the statement. Its Chief Executive Officer Sam Laidlaw is seeking assets to reduce the company's exposure to energy market fluctuations and shield customers from price swings. EDF has 5 million customers in the U.K. where it owns gas- and coal-fired plants.

The offer to British Energy shareholders includes an alternative to an all-cash offer, in the form of 700 pence plus Contingent Value Rights, or CVRs, which give shareholders a slice of profits from the existing stations for the next ten years.

British Energy rejected an approach on July 31 from EDF at 765 pence a share, because its biggest private shareholders said the bid undervalued its nuclear stations and adjacent land. Invesco Ltd., the company's biggest private shareholder, will accept the EDF offer and take CVRs, the French utility said.

British Energy Chief Financial Officer Stephen Billingham said the majority of shareholders will support the deal even though one is opposed to it.

Constellation Offer

Together with U.S. buyout firms KKR & Co. and TPG Capital, EDF last week offered $6.2 billion for Constellation Energy Group Inc., 32 percent more than a rival bid by Warren Buffett. Constellation Chief Executive Officer Mayo Shattuck said Sept. 22 that the $4.7 billion approach by Buffett's MidAmerican Energy Holdings Co. was ``superior'' to any alternative.

Gordon Brown supports the expansion of nuclear power to replace older plants and cut carbon-dioxide emissions, and the sale of British Energy to EDF to accomplish that goal.

British Energy's land is attractive to EDF, which has plans for at least four new U.K. reactors from 2017. EDF wants to operate 10 plants of a new design, the European Pressurized Reactor, or EPR, in the U.S., China, U.K. and South Africa by 2020, Chairman Pierre Gadonneix said in May.

Reactor Costs

Each EPR will cost about 4.5 billion euros, Patrice Lambert-de Diesbach, an analyst at CM-CIC Markets, wrote in a report Sept. 15. That's higher than the 3.3 billion-euro price tag EDF has put on its Flamanville reactor in Normandy, which will be the country's first EPR.

British Energy, led by Chief Executive Officer Bill Coley, has sought to improve the reliability of its nuclear power stations and to secure extensions for their operating lives.

The U.K. utility posted a 65 percent drop in first-quarter profit to 62 million pounds on lower output. Its reactors produced 27 percent less power than a year earlier because of closures following the discovery of corroded wires.

The country's Nuclear Decommissioning Authority, an agency that cleans up older plants, said Sept. 10 it would auction three pieces of land. EDF already bought property adjacent to sites owned by both British Energy and the authority. E.ON AG, Germany's biggest utility, has a grid agreement for a new plant at one site starting in 2020.

The U.K. government acquired a stake in British Energy after rescuing it from collapse in 2004. At the time of its bailout of British Energy, the state took responsibility for the cost of closing the company's plants and cleaning up the sites. It created a Nuclear Liabilities Fund to pay for decommissioning costs, which would receive cash flow equivalent to the size of the state's holding in the company.

(Source: Bloomberg)

British Energy, EDF fail to strike takeover deal

The future of nuclear power generator British Energy was uncertain on Friday after talks for a multi-billion-dollar takeover by French power giant EDF broke down.

In Paris, the head of Electricite de France, the biggest nuclear power generator in the world, said that "financial conditions" had not yet been met for acquisition of British Energy.

A source told Dow Jones Newswires that the two companies may decide to restart talks but added that EDF did not intend increasing its offer.

The BBC reported that major shareholders in British Energy, Invesco and Prudential, were holding out for a higher price owing to the surging cost of fuels.

Meanwhile Britain's Business Secretary John Hutton told the public broadcaster that the government was "disappointed" at the failure to reach a deal.

Britain's Labour government owns more than a third of British Energy but wants to sell its stake.

"We are disappointed by the failure to reach an agreement overnight," Hutton told BBC radio. "I think it would have been a good fit."

He added: "It's up to the board now and EDF to see if there is any way that this gap can be bridged."

British Energy said in a short statement to the London Stock Exchange that "advanced discussions with a party have continued but without agreement to date," leading to a sharp drop in its share price early Friday.

Speaking at a press conference in Paris, EDF chairman and chief executive Pierre Gadonneix said that talks had ended overnight without an agreement on a takeover by the group, in which the French state is the majority shareholder.

"Following in-depth discussions, and after hearing the demands of all sides, we deem that the financial conditions allowing a major development in Britain by EDF have not currently been met," he said.

Gadonneix added that, in light of a trend towards nuclear power in several markets, EDF -- which Friday declared a 12.2-percent drop in half-year profits to 3.08 billion euros -- intended to play a leading role.

EDF, as the world's biggest nuclear power supplier and already Europe's number one electricity producer, had been widely expected to confirm that a deal had been struck to buy British Energy, which has a market value of 12 billion pounds (15.5 billion euros, 24 billion dollars).

A source close to talks with British Energy had told AFP on Thursday that the French group's directors had backed a takeover.

The bid was said to have been in the form of either a cash-only deal worth 765 pence per share or a cash option worth 700 pence a share plus shares.

The offer was aimed at the British government's 35.2 percent stake in British Energy. Under takeover rules, any bid for the government stake would trigger an offer for the rest of group.

In European stock market trading on Friday morning, British Energy's share price was showing a fall of 4.18 percent to 699 pence on London's FTSE 100, which was down 0.31 percent.

EDF dropped by 0.89 percent to 55.45 euros on the Paris CAC 40, which was 0.41 percent lower.

British Energy provides almost one fifth of Britain's electricity and owns and operates eight nuclear power stations.

Last month, British Energy said that a series of takeover proposals received from unnamed parties had undervalued the company.

The government, meanwhile, wants to see a renewal of its nuclear-power generating capacity and the assets owned by the group are seen as a springboard for any such effort.

"The future of new nuclear in the UK doesn't depend on this particular (EDF) deal," Hutton added during his interview with the BBC.

"I think we are absolutely committed to new nuclear power and if this deal is not able to go through for whatever reason, we will be looking at plans to make sure we can continue with our foot on the floor because Britain needs these new nuclear power stations."

Britain's governing Labour Party called nuclear power an "unattractive" option as late as 2003, but has changed its mind as energy costs soar, initiatives against climate change intensify and North Sea oil and gas stocks dwindle.

It also follows an increasing global trend towards atomic power, which currently provides about 16 percent of the world's electricity.

(Source: AFP)