French energy giant EDF gets closer to acquiring British Energy
08 Sep 2008
Only a fortnight back it was reported that Invesco, the biggest single shareholder in the UK nuclear group British Energy after the British government, has called for the company to be merged with Centrica, calling it the only solution for the long-term future of both the companies. In a related recent development, French energy giant EDF, which also formed part of Invesco's plan, is increasingly looking to take over Britain's largest nuclear company within weeks and is in advanced talks on the issue. (See: British Energy's largest private shareholder favours its merger with Centrica)
After an initial 765p-a-share or £12 billion bid for East Kilbride-based British Energy was rejected, analysts dismissed EDF's chances despite it having the public support of the UK government, British Energy's largest shareholder. (See: British Energy receives takeover bids valuing it at more than $21 billion)
Rebel shareholders including Invesco, which controls about 15 per cent of British Energy, said the bid undervalued the company. However, reportedly the French group has improved the terms of the earlier rejected bid. Meetings between senior EDF representatives and Neil Woodford, who runs the Invesco fund that holds the British Energy stake, will continue this week, with the fund's support considered likely.
Together with the British government's share - it has already publicly backed EDF - the French could then count on about 47 per cent of British Energy's shares voting in favour of the plan, probably sufficient for the British Energy board to recommend acceptance. The other rebel, M&G, the fund-management arm of Prudential that holds 7 per cent, is still pushing for a merger with Britain's Centrica.
It is understood that EDF is now considering a small increase in the cash price and, crucially, a change to the terms of the ''contingent value right'' or CVR (in essence, a slice of the company's future profits) that would make it more valuable. This is thought to involve changing the assumptions made on British Energy's likely power output and the price it will receive for its electricity.
Some sources close to the talks hope the deal will finally be brought to a conclusion within a fortnight. John Hutton, the business secretary, reportedly said he was ''impatient'' for it to happen.
Meanwhile, M&G has done its own analysis on a combination of Centrica and BE. It found that synergies of £4 billion to £6 billion could be extracted from a merger. That would lead to BE shares being worth about 925p, according to M&G's sums.
The assumptions are based on Centrica offering five of its own shares for two British Energy shares. Although no such offer is imminent, some City sources believe it was never given serious consideration due to the government's preference for a cash offer and a partnership with EDF.
