What now for British Energy?

Friday, 1 August 2008

Sizewell B (Image: British Energy)

 

British Energy (BE) rejected a revised takeover offer from Electricité de France (EdF) late last night. Announcements from both sides confirm that discussions continue, while the UK government seems displeased with BE's other shareholders. 

 

The French generator and supplier put in its first offer to take over BE for at least 680p per share in June, but this was rejected by the BE board as too low. "None of the proposals put forward so far is above the share price at the close of business Friday 6 June," BE said at the time, indicating that it wanted at least 735p per share. BE's shares dropped slightly to 675p per share on opening this morning.

 

The 735p price point had been reached after a number of European utilities were closely linked with discussions on BE's future. As well as EdF, they included RWE, EOn, Iberdrola, Centrica and Vattenfall while at the time European newspapers claimed sums of up to £6.7 billion ($13 billion) were on the table. This inflated situation rapidly collapsed to a point when EdF was thought to be the only remaining potential buyer. EdF's involvement was confirmed today by all parties as well as UK business and enterprise minister John Hutton who controls the government's 35.2% stake in BE.

 

A statement from Hutton said he was "disappointed" that BE and EdF's talks had not been successful. "We thought it was a good deal and we were ready to accept," he continued. The company's other major shareholders, however, did not think it was a good deal.

 

EdF announced downheartedly: "After in-depth discussions, EdF considers that the conditions for a major development in Great Britain are not met to date." The company is keen to expand its operations into the UK and already has 5.5 million electricity customers in the London area through its subsidiary EDF Energy. It is keen to build Areva EPR nuclear power reactors at BE's existing nuclear generation sites, and Hutton today said EdF's purchase of BE woud have been "a good way to take forward new nuclear plans in the UK."

 

British Energy runs eight nuclear power plants containing a total of 15 reactors and these would normally provide 19% of UK electricity. However, the Advanced Gas-cooled Reactor (AGR) units have suffered reliability problems, which have contributed to a drop in nuclear's share last year to 15%. Although the existing fleet, which includes one modern pressurized water reactor (Sizewell B), would contribute an income stream the firm is seen as most valuable for the sites it holds and its skills base.

 

Hutton's relatively candid statement included a clear invitation to potential nuclear builders to approach the Nuclear Decommissioning Authority - holders of the legacy Magnox generation sites. "Our commitment to nuclear power is clear and nuclear new build does not depend on one single deal. BE still has potential sites: and sites are available from the Nuclear Decommissioning Authority." EdF has kept its options open with respect to UK sites by purchasing land adjacent to the Hinkley Point and Wylfa nuclear power plants.

 

After the apparent failure of this takeover, the liberation of existing UK nuclear power sites from BE and the NDA could see a new mechanism as well as the re-entry of the formerly interested European parties.