Centrica Plans Rights Offer for British Energy Stake

By Lars Paulsson and Nicholas Comfort

Oct. 31 (Bloomberg) -- Centrica Plc, Britain's largest energy supplier, plans to raise 2.2 billion pounds ($3.55 billion) in a rights offer to help fund the potential acquisition of a 25 percent stake in British Energy Group Plc.

Centrica will sell new shares at 160 pence each on the basis of three new shares for every eight held, the Windsor, England-based company said today in a statement. The stock slumped the most in more than five years in London trading.

``It's a good strategic move but a rights issue seems to be dilutive for shareholders,'' said Thierry Bros, a Paris-based analyst at Societe Generale. Earnings per share will be lower in 2009 with the British Energy stake, said Bros, who has a `sell' rating on the stock.

Centrica is seeking production assets to reduce its exposure to energy-market price swings, shielding customers from market volatility and providing more predictable earnings. The company said last month it was in talks with Electricite de France SA on acquiring a stake in British Energy, following the power producer's 12.5 billion-pound takeover by EDF.

``While we see markets as challenging, the company is approaching this from a position of strength,'' Finance Director Nick Luff said today during a conference call with reporters. ``All our major shareholders are on board.''

The shares slid as much as 9.6 percent to 276.75 pence in London, the steepest intraday decline since February 2003. They traded down 16.25 pence at 290 pence at 10:40 a.m. local time.

Debt, Equity

Centrica said last month it would fund the acquisition of its stake in British Energy through a combination of debt and equity. It would pay about 774 pence a share, equivalent to 3.1 billion pounds, the same per-share price EDF agreed for the whole of British Energy.

Luff said the company may also seek to raise capital though asset sales, without elaborating.

``Centrica will remain a significant buyer of gas and power in the U.K. market, for which a strong credit rating is of key importance,'' the company said. The rights offer will ensure that its current credit ratings are maintained, Centrica said.

The rights offer is fully underwritten by Goldman Sachs Group Inc., Credit Suisse Group and UBS AG as joint bookrunners. HSBC Holdings Plc, BNP Paribas SA, RBS Hoare Govett and Barclays Capital are the lead managers.

Centrica said in September it only owns enough power plants and gas fields to meet about one-third of its demand. A British Energy stake would push that up to more than 40 percent, and the company's target is 50 percent.

New Plants

The nuclear power deal would give Centrica output from the existing British Energy stations and the right to participate in new atomic plants.

Centrica, which has about 16 million U.K. electricity and gas customer accounts, said its business performance is ``in line with expectations.'' Full-year earnings will benefit from a lower tax rate because of a one-time deferred tax credit.

Second-half operating margins are expected to be ahead of those achieved in the first half if no abnormal weather patters occur, Centrica said.

The company's upstream gas production and power generation unit, Centrica Energy, expects 2008 gas volumes to be around 10 percent higher than in 2007.

`Several Opportunities'

Centrica is looking to add to its gas production portfolio, in addition to the British Energy stake. The decline in equity markets and stock valuations mean that there are ``several opportunities'' around the U.K. which are ``quite enticing,'' Luff said.

The takeover of British Energy by EDF gives the Paris-based company control of eight British nuclear plant sites with potential for building new reactors. The French utility already owns electricity-production assets in the U.K. that help supply its 5 million household customers.

British Energy had been looking for partners to develop a new generation of nuclear plants in the U.K. as older units need to be replace and to reduce emissions of carbon dioxide from power generation. Nuclear power plants emit virtually no such gases.

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net