Centrica may revive British Energy interest

Published on Sunday 3 August 2008 22:02

BRITISH Gas-owner Centrica could revive plans for a £22 billion all-share merger with British Energy, or an alternative joint venture for nuclear new-build in Britain.

Centrica will sound out its major shareholders over the possible move after the East Kilbride-based nuclear power firm British Energy's 12 billion takeover by French giant EDF collapsed on Friday.

However, it is understood Centrica chief executive Sam Laidlaw would have to be convinced the EDF bid was dead in the water before approaching the Scottish-based nuclear generator with a merger plan.

The French said yesterday they were taking stock of last week's developments and still wanted to be involved in the British nuclear industry. Neither Centrica nor BE would comment yesterday. Centrica would have taken a minority stake in BE – which produces one-sixth of the UK's electricity – had the EDF deal gone ahead.

It put the idea of an all-share merger to BE's board at the beginning of this year, but the nuclear power firm's investors were more keen on a possible cash offer from suitors such as EDF.

One utilities analyst said yesterday: "I would have thought that, of the two possibilities, a joint venture is more likely than a full-blown merger. A merger would raise competition issues as Centrica and British Energy together would have somewhere around a third of Britain's electricity market.

"But the rationale is there: BE has the sites and Centrica has the customer base to sell the power on."

Centrica has about 22 per cent of Britain's residential electricity market, about six million customers.

Centrica – whose British Gas subsidiary trades as Scottish Gas north of the Border – is expected to gauge City interest in a revived merger plan in an upcoming roadshow with its major investors.

The move comes after its controversial 992 million half-year profits last week – a day after British Gas announced a record 35 per cent hike in gas bills and a 9 per cent rise in electricity bills.

The firm is said to only be ready to press ahead with such a plan with the explicit backing of its shareholders and the government, which owns a 36 per cent stake in BE.

EDF's 765p a share offer for the business was set to be announced on Friday, but is understood to have been scuppered by the opposition of two institutional investors, Invesco and M&G, which were holding out for a higher price. They both also have significant shareholdings in Centrica.

Centrica would only be interested in building at most two new nuclear stations, sources say. BE's nuclear power station sites include Hunterston in Ayrshire and Torness in East Lothian.