EDF Close to Agreement on British Energy Takeover

By Sandrine Rastello and Tara Patel

July 29 (Bloomberg) -- Electricite de France SA, the world's largest operator of nuclear reactors, is close to an agreement to buy British Energy Group Plc for about 12.5 billion pounds ($24.9 billion), three people with knowledge of the talks said.

The proposed price is about 775 pence a share, two of the people said. That's 6.5 percent above yesterday's close of 727.5 pence and 27 percent more than March 14, the trading session before British Energy said it may get an offer. Centrica Plc may acquire about 25 percent of the British Energy business as part of the accord. The takeover may be discussed by Electricite de France executives at a July 31 meeting, said the people, who declined to be identified because the talks are confidential.

A deal would conclude more than three months of talks on British Energy's future after the company said in May it received a ``range of proposals'' for a takeover. Gaining control of the East Kilbride, Scotland-based company, the U.K.'s largest nuclear generator, would give Electricite de France access to eight U.K. atomic plants as well as sites on which new ones can be built. Prime Minister Gordon Brown said on June 22 in Jeddah, Saudi Arabia, he backs new atomic plants to meet demand.

High Energy Prices

``High energy prices, further life extensions and access to the country's most qualitative new-build sites make us confident that the real value of British Energy to EDF is close'' to 770 pence a share, Dexia Bank NV analyst Steven de Proost said in a note published July 25. The bank reiterated a ``buy'' rating on the utility yesterday before a possible deal.

Electricite de France shares rose 0.1 percent to 55.29 euros, while shares of British Energy, which have climbed 32 this year, fell 0.2 percent to 726 pence in London. Centrica dropped 0.3 percent to 304 pence and is down 15 percent since the end of December.

British Energy, led by Chief Executive Officer Bill Coley, said last week it is in ``advanced discussions'' regarding a takeover offer without specifying whom the talks were with.

British Energy spokesman Andrew Dowler and Centrica spokesman Andrew Turpin declined to comment yesterday. Electricite de France spokeswoman Carole Trivi also declined to comment.

The acquisition, if agreed on, would come 15 months after Spanish power company Iberdrola SA paid 14.4 billion pounds for Glasgow-based Scottish Power in April last year.

Nuclear Increase

The government owns 35.7 percent of British Energy, and has sought new investors for atomic plants which Business Secretary John Hutton said on March 10 may ``maintain or increase the nuclear contribution'' to the country's electricity production.

The country may need to spend 45 billion pounds through 2025 on new generation, Ernst & Young LLP said in January.

Electricite de France, which is based in Paris, expects to run 10 of the latest new-generation reactors by 2020, Chief Executive Officer Pierre Gadonneix has said, similar to one under construction at Flamanville, Normandy. Centrica, based in Windsor, England, and led by Chief Executive Officer Sam Laidlaw, is Britain's biggest energy supplier.

The purchase would expand Electricite de France's operations in the U.K., where its EDF Energy Plc unit sold power to 7.9 million customers last year. The French utility can raise power rates more in the U.K. than France, where an agreement with the government links increases to inflation. EDF Energy announced last week a 17 percent increase in power bills and a 22 percent rise in gas charges.

Higher Prices

The Business and Enterprise Committee in the House of Commons, which includes members of Parliament from the U.K.'s three main political parties, concluded in a report yesterday that the country has higher natural gas prices than other European countries. The panel said this suggests a lack of competition, though it didn't find proof of price-fixing.

``Britain has a diverse electricity generation portfolio, owned by a number of different companies,'' the report said. ``We are concerned that this may be undermined by market consolidation, such as a takeover of British Energy.''

Brown favors nuclear power because it emits less carbon dioxide, the gas blamed for global warming, than gas and coal- fed stations. The U.K.'s policy contrasts with Germany, which is committed to closing down its nuclear power plants by about 2021. Italian Prime Minister Silvio Berlusconi's new government announced its intention in May to start building a nuclear plant within five years, after the country abandoned atomic energy for safety reasons in the 1980s.

Earnings Drop

British Energy in May said full-year profit declined 28 percent after the discovery of corroded wires led to production shutdowns. Net income for the fiscal year ended March 31 slid to 335 million pounds from 465 million a year earlier.

EDF said in May first-quarter sales rose 5.2 percent 18.3 billion euros ($28.8 billion) on increased heating demand and higher prices. The company has said earnings will be crimped this year by higher costs and reactor repairs that will dent output. In February it published results showing a 44 percent increase in second-half net income to about 2.11 billion euros.

EDF, which operates 58 reactors in France, is pursuing projects in China, South Africa and the U.S., Gadonneix said in an interview on July 4.

UBS AG is advising the government on the sale of its stake, Merrill Lynch & Co. is advising EDF and NM Rothschild & Sons Ltd. is working with British Energy.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Tara Patel in Paris at tpatel2@bloomberg.net