Nuclear plan in disarray as deal stalls

LONDON/PARIS Fri Aug 1, 2008 6:43pm BST

A sign is seen outside British Energy's Heysham nuclear power station, northern England, April 14, 2008. REUTERS/Darren Staples

A sign is seen outside British Energy's Heysham nuclear power station, northern England, April 14, 2008.

Credit: Reuters/Darren Staples

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LONDON/PARIS (Reuters) - The drive for more nuclear power is in disarray after key British Energy investors rejected a 12 billion pound takeover bid by EDF, derailing the French group's expansion plans.

EDF, the world's biggest single producer of nuclear energy and one of the few companies with the expertise to build new nuclear power stations, said on Friday it had failed to reach an agreement to buy British Energy, whose land around existing power plants is viewed as the best site for new developments.

A source close to the matter said leading private shareholders in British Energy had rejected EDF's proposal as too low, but added talks between the companies were continuing.

EDF had all but secured approval from the firm for a cash offer in the region of 775 pence a share, with the potential of future payments based on electricity prices, the source told Reuters, but some investors then rejected it.

A source close to EDF said 15-percent British Energy shareholder Invesco was likely to have been involved in the decision. An Invesco fund manager declined to comment.

The government, which owns 35 percent of British Energy and wants more nuclear power to help cut carbon emissions and reduce its reliance on imports, said it was disappointed.

"We thought it was a good deal, we were ready to accept the deal," Business Minister John Hutton said in a statement.

If a deal cannot be revived, British Energy has said it will look for partnerships with other companies to develop new power plants. But this could take longer, at a time when many of its existing eight plants are coming toward the end of their lives.

The deal's collapse is also the latest international setback for EDF after it showed interest, then failed, in attempts to buy a stake in Spanish utility Iberdrola and Belgian gas and power companies Distrigas and SPE.

However the cash-rich French group, which provides 80 percent of France's electricity from its 58 reactors, left the door open to a possible tie-up in the future.

SHARES SUFFER

"The conditions are not currently right for a major development in Britain, but our ambition and determination remain the same," Chief Executive Pierre Gadonneix told a news conference. "We are completely dedicated to preserve our objective to become a major player of nuclear in Great Britain."

At 12:40 p.m. British time, shares in British Energy, which supplies around a fifth of the country's electricity, were down 4.25 percent at 698.5 pence, while the cost of insuring its debt against default jumped.

Five-year credit default swaps on British Energy widened around 100 basis points to 220 basis points, traders said, meaning it costs 220,000 euros per year to insure 10 million euros of the company's debt against default.

Shares in EDF, which also reported a bigger-than-expected 2 percent rise in first-half core profit to 9.04 billion euros (7.12 billion pounds), were down 1.7 percent at 54.99 euros. EDF's CDS were steady at 37.5 basis points.

Evolution Securities analyst Lakis Athanasiou said British Energy shareholders were right to reject the offer, saying his forecast on future electricity prices and assumptions on existing plants gave a share price a value of 920 pence.

A deal would have netted the British government around 4.6 billion pounds -- officially to go towards the clean-up of the country's declining nuclear power sector.

THe government gave the green light for a new wave of nuclear expansion in January, triggering an auction for British Energy, which lacks the expertise to build new plants itself.

Germany's RWE, Spain's Iberdrola and France's Suez were all at various points linked with the auction, but EDF quickly emerged as the most credible suitor.

The collapse of its proposed deal is also a blow to utility Centrica , which a source close to the matter said would have taken a minority stake in British Energy following a takeover by EDF.

British Energy said in a statement it had held advanced discussions with an unidentified suitor and added there was no certainty an offer would be made. EDF also confirmed talks with British Energy but declined to say if they were ongoing.

(Additional reporting by Laurence Fletcher, Matt Falloon and Maya Thatcher in London and Tim Hepher in Paris; Editing by David Cowell and Jason Neely)

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