British Gas parent Centrica has confirmed it is considering a merger with British Energy if the EDF takeover deal falls through.
Centrica is in talks with the French utilities giant over taking a minority stake in the nuclear power firm, but said it was looking at a merger as one of a number of alternative options.
EDF’s expected £12 billion bid failed to materialise on Friday amid reports that the deal was scuppered by the opposition of two institutional shareholders, who were holding out for a higher price.
British Energy, which produces a sixth of the UK’s electricity, announced last week that discussions were continuing despite failing to reach agreement with its suitor.
However, Centrica said it was lining up possible merger plans should the talks collapse. Centrica said it was also mooting a long-term deal to buy power from British Energy, as well as participating in its potential new nuclear developments.
The group said it had yet to discuss a merger or alternative options with British Energy and would only proceed “if terms could be agreed and if all parties are fully supportive”.
Reports at the weekend suggested that Centrica was looking to revive plans for a £22 billion all-share merger with British Energy and was sounding out its major shareholders over the possible move.
It put the idea of an all-share merger to BE’s board at the beginning of this year, but the nuclear power firm’s investors were more keen on a possible cash offer from suitors such as EDF. Centrica will put the possibility of a merger to investors at a roadshow following its controversial £992 million half-year profits last week – a day after British Gas announced a record 35 per cent hike in gas bills and a nine per cent rise in electricity bills.
The firm was said to be ready to press ahead with such a plan only with the explicit backing of its shareholders and the Government, which owns a 36 per cent stake in BE.
The UK’s future nuclear power strategy was thrown into uncertainty after a no-show for EDF’s widely anticipated 765p-a-share offer.
The swoop by EDF had been seen as a key step towards the proposed construction of new nuclear power plants in the UK.
British Energy, which has around 6,000 staff, owns the UK’s eight nuclear reactors and its sites are the likely locations for the next generation of nuclear plants.
It is thought EDF is considering its options and may decide to come back with an offer of 800p a share, with speculation that it is to come under intense pressure from the Government to table a higher bid.
The Government could gain around £4 billion from the sale of the stake at a time when public finances are under pressure, but an all-share merger between British Energy and Centrica may be more politically acceptable.
EDF is majority owned by the French Government and a takeover would put the UK’s nuclear destiny in foreign hands.
British Energy’s eight nuclear power stations are Dungeness B in Kent, Hartlepool, Heysham 1 and 2 in Lancashire, Hinkley Point B in Somerset, Hunterston B in Ayrshire, Sizewell B in Suffolk and Torness in East Lothian.
The group also owns a coal-fired power station at Eggborough, East Yorkshire.