Britain’s future is nuclear with or without BE deal
Last week nuclear operator British Energy was preparing itself for a £12bn sale to French power giant EDF.
This week, that deal lies in tatters and the government may be forced rethink its plans to boost the UK’s long-term reliance on atomic energy. So what next for this troubled firm, operator of the UK’s eight nuclear generators and producer of 20 per cent of the nation’s power?
A source close to British Energy said: “If no agreement can be reached between the firm and EDF it will go back to Plan A. That is to set up three or four joint ventures to develop the suitable sites the company owns to accommodate the government’s plans for nuclear expansion.”
British Energy plans to build six 1.6 gigawatt plants for £4bn each on sites around the country. Suitors covet British Energy because it already owns the sites new plants are likely to be built on. Observers say the firm, led by chief executive Bill Coley, initially planned to announce a number of joint venture deals with European power firms in March, but stalled due to the bidding process the nuclear operator became involved in.
Evolution Securities’ energy analyst Lakis Athanasiou said EDF pulling the plug on the deal was a setback, but not a body blow for British Energy shareholders.
He said: “By my calculations it is worth around 920p a share, and EDF clearly does not want to pay what the company is worth, therefore stockholders will not mind them dropping their interest.”
Industry observers say that if EDF does not come back, the nuclear generator should be able to strike a number of joint ventures with rivals like Britain’s Centrica, Germany’s RWE and others by the end of the year.
EDF’s interest in British Energy was sparked when the government gave the green light for new nuclear plants in January, as a way of securing the country’s energy supply and cutting down on carbon emissions.
But British Energy is seen as too small and unskilled to build them on its own. The business was privatised in 1996, but in 2002 it had to be saved from bankruptcy with a £410m government bailout after a slump in wholesale energy prices.
Large European players like Germany’s E.ON, Spain’s Iberdola and Centrica were touted as potential buyers, but the hugely experienced cash-rich EDF quickly emerged as the only serious bidder.
It provides 80 per cent of France’s electricity from its 58 reactors and is the world’s biggest single producer of nuclear energy.
French Fracas
The EDF board, led by chairman and chief executive Pierre Gadonneix, met late last Thursday night and agreed a 765p cash offer for British Energy. This was an improvement on the 700p offer EDF made earlier in the year.
But Invesco, which owns 15 per cent of British Energy stock and Prudential, which owns 7.2 per cent, said the bid was unacceptable, adding that recent rises in world energy markets valued the stock at a significant premium to EDF’s latest offer.
This led EDF to pull out of the deal. On Friday EDF’s Gadonneix said: “We believe that the financial conditions for a major development of EDF in Great Britain are not right today.” But Gadonneix signalled that he would keep his eye on Britain’s nuclear plans.
He said: “The trend towards nuclear power is being confirmed in certain countries, notably the UK. It is a subject in which EDF plans to have a leading position.”
The change of plans on British Energy is EDF’s latest international setback after it showed interest, then failed, in attempts to buy a holding in Spain’s Iberdrola and Belgian companies Distrigas and SPE.
The British government, which is keen to offload its 35 per cent stake – worth around £4bn – in British Energy seemed more unhappy than other shareholders at the failed deal.
Business Secretary John Hutton said: “We are disappointed by the failure to reach an agreement. It’s up to the board now and EDF to see if there is any way that this gap can be bridged.
“But the future of new nuclear in the UK doesn’t depend on this particular deal.” British Energy’s management and shareholders are betting that Hutton is right.