Power group weighs up £11bn offer from RWE

Apr 11 2008 by Karen Dent, The Journal

NUCLEAR power station operator British Energy, which owns a site in Hartlepool employing about 700 people, is weighing up an £11bn takeover approach from German utility business RWE.

The company, which confirmed talks about a possible takeover or merger last month, has allowed RWE access to its books, according to reports.

British Energy, which produces about one-sixth of the UK’s electricity, operates all eight of Britain’s nuclear power stations and is expected to play a major role in the proposed development of the next generation of nuclear power plants.

RWE’s all-cash indicative offer may face competition from French firm EDF as well as British Gas owner Centrica, which could team up with another player for a bid.

The Government owns a 35% stake in British Energy and could make up to £4bn if RWE’s proposal is accepted.

EDF is said to be interested in buying only part of the business but may be forced into making an offer for the whole firm if RWE goes ahead with its bid.

RWE, which owns UK power company npower, is also considered to have the financial firepower to make such a move as its £4bn debt is only three times last year’s operating profits. Centrica – seen as a likely bid partner to ease Government concerns over BE falling into foreign hands – has submitted an all-share offer but this is unlikely to find favour with the company’s board, the FT says.

British Energy, which has around 6,000 staff and produces around one-sixth of the UK’s electricity, was unavailable for comment. Its 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. It also owns a coal-fired power station at Eggborough, East Yorkshire.

In a brief update which made no mention of the possible offer, the firm said its nuclear output for the year to March 31 was marginally ahead of expectations at 50.3 terrawatt hours (TWh). But the company added that it expects higher than expected output losses this year from refuelling operations due to delays at Dungeness.

Charles Stanley analyst Tina Cook said: “Although a formal auction of British Energy has not started yet, analysts are anticipating bids in the range of 700p-900p. This implies that participants are willing to pay a premium to gain access to its coveted sites and skilled labour force, despite the operational difficulties that continue to plague the firm.”

The shares closed the day up 38p at 739.5.