'Obvious solution' to British Energy woes is a merger with Centrica, says leading shareholder

Published on Sunday 24 August 2008 21:33

THE largest City shareholder in British Energy has called for the nuclear power firm to merge with gas supplier Centrica, it emerged yesterday.

Neil Woodford, head of investment at Invesco – which owns a 15 per cent stake in East Kilbride-based British Energy (BE) as well as 5 per cent of Centrica – was yesterday quoted as describing such a tie-up as the "obvious solution" to the future of both companies.

Earlier this month, a proposed 12 billion takeover of BE by France's EDF collapsed at the last minute after its major institutional shareholders, including Invesco, reportedly called for a higher price tag to reflect rising energy prices.

However, Woodford is now said to believe that a tie-up between BE and British Gas-owner Centrica could still involve EDF, which is majority owned by the French government. In an interview yesterday, Woodford said: "A combination of British Energy and Centrica solves the problems facing both companies today.

"Together, they can work out a joint venture with EDF to build nuclear sites."

Woodford is this week due to lay out his plans to the Shareholder Executive, the body which manages the UK government's 35.5 per cent stake in BE. An all-share merger between BE and Centrica is likely to receive a lukewarm reception because the ministers would prefer a cash offer for its stake, which could generate up to 4bn for depleted Treasury coffers.

Yesterday, it emerged that Centrica had since indicated that it would be prepared to pay cash for the government's holding in BE. M&G, British Energy's second biggest institutional shareholder, is also said to be backing the pressure for a merger between the companies.

The 12bn swoop by state-owned EDF had been seen as a key step towards the proposed construction of new nuclear power plants in the UK.

It is not known whether the French firm, which owns and operates 58 nuclear power stations worldwide, is still interested in pursuing a takeover of BE.

The company still has other options for developing nuclear facilities in the UK, having bought land adjacent to two existing nuclear plants.

EDF's expertise in the sector made it the most likely bidder for British Energy.

The government recently highlighted the role of the private sector in funding and delivering new nuclear power stations, as part of its broader target to cut carbon dioxide emissions by at least 60 per cent of 1990 levels by 2050.