EDF Agrees to Buy British Energy for $23 Billion

By Tara Patel and Paul Dobson

Sept. 24 (Bloomberg) -- Electricite de France SA, the world's biggest nuclear utility, agreed to buy British Energy Group Plc for a sweetened 12.5 billion pounds ($23 billion) as the U.K. turns back to atomic power after decades of neglect.

EDF will pay 774 pence a share for the country's biggest electricity producer, according to a statement today. That's 35 percent above British Energy's closing price on March 14, the last trading session before the East Kilbride, Scotland-based utility said it may receive an offer. Centrica Plc, the U.K.'s dominant energy supplier, is in talks to take a 25 percent stake in the acquired company.

The deal ends four months of wrangling over British Energy's future and hands EDF Chief Executive Officer Pierre Gadonneix control of eight British nuclear plant sites where he plans to build four reactors. The purchase by EDF, whose 58 nuclear units produced 77 percent of France's electricity last year, comes as Britain's Prime Minister Gordon Brown seeks to cut dependence on energy imports and curb emissions.

``It kickstarts the government's drive to facilitate new nuclear build,'' Tina Cook, an analyst at Charles Stanley & Co. in London, said today by phone. ``British Energy's existing assets are aging. EDF will contribute its expertise, as well as replacing those assets.''

Shares Jump

British Energy jumped as much as 7.4 percent in London and traded at 771 pence as of 2:45 p.m. local time. Centrica added 1.1 percent to 330.25 pence. EDF rose 4.4 percent to 52.36 euros in Paris. British Energy is 36 percent owned by the U.K. government while EDF is 85 percent state-owned.

``The nuclear bandwagon is rolling,'' U.K. Business Secretary John Hutton said today in an interview with Bloomberg News. Atomic power provides ``reliable, affordable energy in the U.K. and helps us in the fight against climate change.''

EDF is paying 12.5 billion pounds for British Energy's 8,800 megawatt nuclear-generating capacity and land, excluding a coal plant which bondholders have the option to buy, the equivalent of 1.42 billion pounds per 1,000 megawatts. Spain's Gas Natural SDG SA is paying 16.8 billion euros (13.3 billion pounds) for Union Fenosa SA's 11,700 megawatts of own installed capacity, which includes nuclear, gas and coal plants, equal to 1.14 billion pounds per 1,000 megawatts.

Shield Customers

Centrica may also pay 774 pence a share for its stake, according to the statement. Its Chief Executive Officer Sam Laidlaw is seeking assets to reduce the company's exposure to energy market fluctuations and shield customers from price swings. EDF has 5 million customers in the U.K. where it owns two coal-fired plants and one gas-fed station, according to its Web site.

The offer to British Energy shareholders includes an alternative to an all-cash offer, in the form of 700 pence plus Contingent Value Rights, or CVRs, which give shareholders a slice of profits from the existing stations for the next 10 years.

British Energy rejected an approach on July 31 from EDF at 765 pence a share, because its biggest private shareholders said the bid undervalued its nuclear stations and adjacent land. Invesco Ltd., the company's biggest private shareholder, will accept the EDF offer and take CVRs, the French utility said.

British Energy Chief Financial Officer Stephen Billingham said the majority of shareholders will support the deal even though one is opposed to it.

Advisers

Merrill Lynch & Co. and BNP Paribas SA are advising EDF, while British Energy is being advised by Rothschild, Gleacher Shacklock LLP, JPMorgan Cazenove Ltd. and Citigroup Inc. Centrica is being advised by Goldman Sachs International and Credit Suisse. UBS AG advised the U.K. government and Lazard Ltd. the Nuclear Liabilities Fund.

Together with U.S. buyout firms KKR & Co. and TPG Capital, EDF last week offered $6.2 billion for Constellation Energy Group Inc., 32 percent more than a rival bid by Warren Buffett. Constellation CEO Mayo Shattuck said Sept. 22 that the $4.7 billion approach by Buffett's MidAmerican Energy Holdings Co. was ``superior'' to any alternative.

``The British Energy and Constellation offers are complimentary,'' said Nathalie Pelras, a fund manager at Richelieu Finance in Paris, which oversees $6.2 billion. ``The company will be number one in U.K. nuclear and has put a foot in the door in the U.S.''

New Design

British Energy's land is attractive to EDF, which has plans for at least four new U.K. reactors from 2017. EDF wants to operate 10 plants of a new design, the European Pressurized Reactor, or EPR, in the U.S., China, U.K. and South Africa by 2020, Gadonneix, 65, said in May.

British Energy, led by CEO Bill Coley, 65, has sought to improve the reliability of its nuclear power stations and to secure extensions for their operating lives.

The U.K. utility posted a 65 percent drop in first-quarter profit to 62 million pounds on lower output. Its reactors produced 27 percent less power than a year earlier because of closures following the discovery of corroded wires.

The country's Nuclear Decommissioning Authority, an agency that cleans up older plants, said Sept. 10 it would auction three pieces of land. EDF already bought property adjacent to sites owned by both British Energy and the authority. E.ON AG, Germany's biggest utility, has a grid agreement for a new plant at one site starting in 2020.

The U.K. government acquired a stake in British Energy after rescuing it from collapse in 2004. At the time of its bailout of British Energy, the state took responsibility for the cost of closing the company's plants and cleaning up the sites. It created the NLF to pay for decommissioning costs.

To contact the reporters on this story: Tara Patel in Paris tpatel2@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net