Centrica faces battle over plan to merge with British Energy

Published on Monday 4 August 2008 22:16

THE government last night poured cold water on a possible move by British Gas owner Centrica to merge with nuclear power provider British Energy.

Centrica is in talks with the French utilities giant EDF over taking a minority stake in the nuclear power firm, but said yesterday that it was looking at a merger as one of a number of alternative options.

EDF's expected 12 billion bid for East Kilbride-headquartered British Energy failed to materialise on Friday amid reports that the deal was scuppered by the opposition of two institutional shareholders that are holding out for a higher price.

Yesterday Centrica said that if the current round of discussions stalled, it would consider proposing a merger with British Energy.

Centrica said it was also considering a long-term deal to buy power from British Energy, as well as participating in its potential new nuclear developments.

The group said it had yet to discuss a merger or alternative options with British Energy and would only proceed "if terms could be agreed and if all parties are fully supportive".

However, the latest move by Centrica was undermined when a spokesman for the UK government said a deal with EDF remained ministers' preferred option. The spokesman said that the Business Secretary John Hutton had said on Friday the EDF deal would have been "a good fit". He added: "That remains our view and the parties are still in discussion. Our clear preference is for a business with experience of new nuclear build."

Analysts have questioned a deal between the two companies as a solution to funding new nuclear development in the UK, as neither has a proven record on building new nuclear plants.

Centrica said in a statement that a merger would only be considered "if terms could be agreed and if all parties are fully supportive".

A spokesman for Centrica stressed that a merger was one option open to the company if the current round of talks failed.

Other possible options included long-term deals to buy power from the company or participating in the development of possible future British Energy sites.

The British government, which owns about 35 per cent of British Energy, gave the green light in January to a new estate of nuclear power stations to help cut carbon emissions and reduce reliance on energy imports.

This sparked takeover interest in British Energy, which lacks the expertise to build new plants itself but owns the land believed to be the most likely for new developments.

EDF's planned 12bn bid for British Energy stalled after the British company's shareholders, led by Invesco and M&G, rejected its 765p a share offer as too low, a move supported by leading analysts in the wake of recent energy price increases.

It has been reported that the government will put pressure on EDF to increase its offer.