Shareholders voice anger at the utility's proposed £3.1bn nuclear deal and call on it to buy gas assets instead
Centrica is facing a shareholder rebellion over its plan to spend £3.1billion buying a stake in Britain's nuclear industry.
A leading institutional shareholder in Centrica, the owner of British Gas, is urging the company to scrap its plan to acquire 25 per cent of British Energy from EDF of France and use the money to buy more gas assets instead.
The investor, which asked not to be named, is the latest in a growing chorus of City objectors to the deal.
Last month Peter Atherton, Citigroup's leading European utilities analyst, said that a collapse in wholesale energy prices had left Centrica at risk of paying £1billion too much for the stake. “We believe Centrica should rethink buying 25 per cent of British Energy,” he said in a research note to clients.
The shareholder has told Centrica's board that it voted against the plan to buy into British Energy because it believed that nuclear power was outside its core expertise. It would like Sam Laidlaw, the chief executive, to reconsider the move.
In a conference call with the shareholder a few weeks ago, the board is said to have responded that it is part of a “significant minority” of investors still opposed to the deal.
However, the two shareholders that have been the deal's most public backers - Invesco Perpetual, run by Neil Woodford, and M&G, Prudential's investment arm - controlled a combined 22 per cent of British Energy and so arguably had their own motivations for supporting the move.
Invesco, with 15 per cent of British Energy, and M&G, with 7 per cent, both held out for a higher offer for the nuclear generator from EDF in August.
In the days that followed, Mr Woodford went as far as to address the board of Centrica on the merits of buying into a deal, before accepting a raised bid from EDF.
Centrica raised £2.2billion cash for the deal more than six weeks ago and the fact that it has not yet been handed over to EDF has sparked speculation that the two sides cannot agree how to divide any earnings.
EDF, owned by the French Government, will want to retain the flexibility to plough back profits into the business, while Centrica will want a fixed proportion paid out as dividends.
Mr Laidlaw was brought into Centrica two years ago to solve the problem of its vulnerability to volatile gas prices and has always argued that the deal to buy into Britain's nuclear power generator is the answer.
But the rebel investor said: “We have told them that we can look through short-term earnings fluctuations and see that in the long term dividend payments are resilient. I just dread to think what will happen when they report first earnings after the deal and show that the core business is doing well, but British Energy has been hit by another reactor shutdown. People will ask what on earth they are doing.
“Sam Laidlaw and Nick Luff [Centrica's finance director] have gone in there with a mandate to do a deal. Their blood is up. We just want to say, ‘cool it guys'.”
Citigroup's Mr Atherton recommended that Centrica should back out of the deal, which it is pursuing to stem a shortfall in its own power generating capacity. He said that the deal struck with EDF last September, shortly before the French power company completed its £12.5billion takeover of British Energy, was both dilutive and high risk.
Since the memorandum of understanding was announced on September 24, global energy prices have collapsed, dragging down the valuations of energy companies around the world.
Mr Atherton suggested that this had seriously undermined the economic logic that had underpinned an agreed price of 774p per share in British Energy.
“Fixing the price hasn't worked in Centrica's favour,” he said last month, adding that it was “unlikely that British Energy would trade at more than 500p per share today given the falls in energy prices”. He said that a 25 per cent share in British Energy was now worth no more than £2billion.
A leading institutional shareholder in Centrica, the owner of British Gas, is urging the company to scrap its plan to acquire 25 per cent of British Energy from EDF of France and use the money to buy more gas assets instead.
The investor, which asked not to be named, is the latest in a growing chorus of City objectors to the deal.
Last month Peter Atherton, Citigroup's leading European utilities analyst, said that a collapse in wholesale energy prices had left Centrica at risk of paying £1billion too much for the stake. “We believe Centrica should rethink buying 25 per cent of British Energy,” he said in a research note to clients.
The shareholder has told Centrica's board that it voted against the plan to buy into British Energy because it believed that nuclear power was outside its core expertise. It would like Sam Laidlaw, the chief executive, to reconsider the move.
In a conference call with the shareholder a few weeks ago, the board is said to have responded that it is part of a “significant minority” of investors still opposed to the deal.
However, the two shareholders that have been the deal's most public backers - Invesco Perpetual, run by Neil Woodford, and M&G, Prudential's investment arm - controlled a combined 22 per cent of British Energy and so arguably had their own motivations for supporting the move.
Invesco, with 15 per cent of British Energy, and M&G, with 7 per cent, both held out for a higher offer for the nuclear generator from EDF in August.
In the days that followed, Mr Woodford went as far as to address the board of Centrica on the merits of buying into a deal, before accepting a raised bid from EDF.
Centrica raised £2.2billion cash for the deal more than six weeks ago and the fact that it has not yet been handed over to EDF has sparked speculation that the two sides cannot agree how to divide any earnings.
EDF, owned by the French Government, will want to retain the flexibility to plough back profits into the business, while Centrica will want a fixed proportion paid out as dividends.
Mr Laidlaw was brought into Centrica two years ago to solve the problem of its vulnerability to volatile gas prices and has always argued that the deal to buy into Britain's nuclear power generator is the answer.
But the rebel investor said: “We have told them that we can look through short-term earnings fluctuations and see that in the long term dividend payments are resilient. I just dread to think what will happen when they report first earnings after the deal and show that the core business is doing well, but British Energy has been hit by another reactor shutdown. People will ask what on earth they are doing.
“Sam Laidlaw and Nick Luff [Centrica's finance director] have gone in there with a mandate to do a deal. Their blood is up. We just want to say, ‘cool it guys'.”
Citigroup's Mr Atherton recommended that Centrica should back out of the deal, which it is pursuing to stem a shortfall in its own power generating capacity. He said that the deal struck with EDF last September, shortly before the French power company completed its £12.5billion takeover of British Energy, was both dilutive and high risk.
Since the memorandum of understanding was announced on September 24, global energy prices have collapsed, dragging down the valuations of energy companies around the world.
Mr Atherton suggested that this had seriously undermined the economic logic that had underpinned an agreed price of 774p per share in British Energy.
“Fixing the price hasn't worked in Centrica's favour,” he said last month, adding that it was “unlikely that British Energy would trade at more than 500p per share today given the falls in energy prices”. He said that a 25 per cent share in British Energy was now worth no more than £2billion.
From The Times
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