Centrica Plans To Propose To British Energy

Centrica, who along with other Gas and Electricity providers facing flak for record profits in the past year, is mulling over a 10 billion pound offer to make to pick up British Energy [BE], one of UK's nuclear power provider with 8 plants spread over Britain. This follows BE's readiness to hold discussions with interested parties for a business tie-up or an offer for the take over of the company.

BE, which was in a financial mess six years ago and was helped by the British Government to get back on its feet is also enjoying the fruits of higher retail energy prices and the group's current value stood at 6.4 billion pounds. The group has 8 nuclear plants in Lancashire, Ayrshire, East Lothian, Kent, Suffolk and Somerset in addition to a coal based power generator in East Yorkshire. As per the government's plans, these nuclear stations have to be decommissioned by the year 2035 and new nuclear power plants will be commissioned on the same or near to the existing power plants. BE was in talks with prospective buyers in the past year but at present seems to be more serious.

But Centrica will need to outbid other competitors such as RWE of Germany, Iberdrola of Spain and EDF of France if it is to get its hands on BE. The British Government, which has a 35% stake in BE has appointed UBS as its advisor while NM Rothschild is advising BE on the proposed tie-up or takeover deal. BE supplies around a sixth of the total electricity supplied to the UK and talks of a possible take over have already raised its share prices to 621p in the past week. Centrica's chief executive Sam Laidlaw was of the view that his company could give a “British solution” to secure BE's future.

Centrica has seen its share prices come down to 297p from the start of the current year and its current market value is around 11 billion pounds. It also faces a tough fight since its rivals bidding for BE are not only giants in their respective countries, but have also picked up other related companies in the recent past. The fact that Centrica's share prices have eroded 17% during the previous 3 months could prove to be a handicap in the group's bid to raise cash in order to take over BE. Centrica's spokesperson however did not answer to any queries on the company's take over bid for BE.

Mr. Laidlaw's also stated that Europe was continuously using the UK as its main source to procure gas at a short notice but might not be willing to supply gas to the UK in case it needs it the most and that UK needed to get better access to the European market for its gas supplies. He also wanted to see more liberalization in order for this problem to be rectified even as gas prices touched a high of 51p a therm, which was 20p higher than last year. UK ministers were also of the view that any company joining up with BE should maintain and try to extend the life of their existing power reactors.

The UK government's decision to sell of its 35% stake in BE after selling off 25% in the previous year to raise 2.08 billion pounds is what has prompted Centrica and other giants into the arena. Centrica's officials however are of the opinion that the company could have a hard time pulling off the deal due to the presence of strong competition from its rivals.

The coming months could decide on whether Centrica gets its act together for acquiring BE or whether it loses out to any one of its international rivals. Centrica will be able to consolidate its market position in case it manages to join up forces with BE. It will need to be seen as to how the company manages to raise the money in case BE does agree to their offer.