Electricite de France SA, the world’s biggest nuclear utility, agreed to buy British Energy Group Plc for a sweetened £12.5 billion ($23 billion) as the UK turns back to atomic power after decades of neglect.
EDF will pay 774 pence a share for the country's biggest electricity producer, according to a statement today. That's 35 per cent above British Energy's closing price on March 14, the last trading session before the East Kilbride, Scotland-based utility said it may receive an offer. Centrica Plc, the UK's dominant energy supplier, is in talks to take a 25 per cent stake in the acquired company.
The deal ends four months of wrangling over British Energy's future and hands EDF Chief Executive Officer Pierre Gadonneix control of eight British nuclear plant sites where he plans to build four reactors.
The purchase by EDF, whose 58 nuclear units produced 77 per cent of France's electricity last year, comes as Britain's Prime Minister Gordon Brown seeks to cut dependence on energy imports and curb emissions.
“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 jumped as much as 6.6 per cent in London and traded at 765.5 pence as of 11:44 am local time. Centrica erased earlier gains and was down 0.4 per cent at 325.25 pence. EDF rose 3.9 per cent to ¤52.10 in Paris. British Energy is 36 per cent owned by the UK government while EDF is 85 per cent state-owned.
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Replace Plants: UK Business Secretary John Hutton this week pledged to “put the brakes” on imported gas supplies by building new nuclear and coal-fired power stations. Nuclear power generates about 20 per cent of UK electricity, and most stations will reach the end of their lives over the next decade.
Centrica may 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 UK where it owns two coal-fired plants and one gas-fed station, according to its Web site.
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 10 years.
Undervalued Plants: 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.
Merrill Lynch & Co and BNP Paribas SA are advising EDF, while British Energy is being advised by Rothschild, Gleacher Shacklock LLP, JPMorgan Cazenove Ltd and Citigroup Inc. Centrica is being advised by Goldman Sachs International and Credit Suisse. UBS AG advised the UK government and Lazard Ltd. the Nuclear Liabilities Fund.
Together with US buyout firms KKR & Co and TPG Capital, EDF last week offered $6.2 billion for Constellation Energy Group Inc, 32 per cent more than a rival bid by Warren Buffett. Constellation CEO Mayo Shattuck said September 22 that the $4.7 billion approach by Buffett's MidAmerican Energy Holdings Co was “superior” to any alternative.
British Energy’s land is attractive to EDF, which has plans for at least four new UK reactors from 2017. EDF wants to operate 10 plants of a new design, the European Pressurised Reactor, or EPR, in the US, China, UK and South Africa by 2020, Gadonneix, 65, said in May.
Reactor Costs: Each EPR will cost about ¤4.5 billion ($6.6 billion), Patrice Lambert-de Diesbach, an analyst at CM-CIC Markets, wrote in a report September 15. That's higher than the ¤3.3 billion price tag EDF has put on its Flamanville reactor in Normandy, which will be the country's first EPR.
British Energy, led by CEO Bill Coley, 65, has sought to improve the reliability of its nuclear power stations and to secure extensions for their operating lives.
The UK utility posted a 65 per cent drop in first-quarter profit to £62 million on lower output. Its reactors produced 27 per cent less power than a year earlier because of closures following the discovery of corroded wires.
Auction Land: The country's Nuclear Decommissioning Authority, an agency that cleans up older plants, said September 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 UK 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.