UK energy firm revives merger talks with GDF

INTERNATIONAL Power - which owns generation assets in the UK and across 20 other countries - has revived merger talks with French utility giant GDF Suez.

Under a proposed deal International Power would be combined with the international assets of GDF. The business would continue to be listed on the London Stock Exchange with GDF as its majority shareholder.

It would double International Power's capacity and create a London-listed power company with higher revenues than Germany's E.ON, the world's largest utility.

However, agreement is far from certain with International Power shareholders expected to demand more cash and the French state keen to avoid diluting its 36 per cent stake in GDF.

Traders have put the value of the deal at 400p to 420p per share, which would be equivalent to 14.8 times International Power's estimated 2010 earnings. Both companies declined to comment on a potential valuation or the timetable of the talks. Shares in International Power rose strongly on the news and closed up 33.5p, or 10.6 per cent, at 350.3p yesterday.

Discussions between the two sides collapsed in January after they were unable to agree terms and the UK company's biggest investors reportedly demanded a greater element of cash in any deal.

International Power is one of the largest independent generators in the world with interests in over 45 power stations.

Its UK assets include a major coal-fired station at Rugeley in Staffordshire and a gas-fired station at Saltend near Hull. Control of another UK utility by a foreign company could re-ignite debate about security of supply issues after nuclear power station operator British Energy was bought by French energy giant EDF in 2008.