Centrica, the owner of British Gas, is seeking to sweeten the terms of its £3.1 billion assault on Britain's nuclear industry in an attempt to quell a shareholder rebellion against the deal.
Sam Laidlaw, Centrica's chief executive, yesterday raised for the first time the prospect that the plan could be jettisoned if it does not deliver value for shareholders.
Mr Laidlaw said that a slide in the wholesale price of electricity had altered the economics of a deal, although he said he remained committed to the group's plan to buy a 25 per cent stake in British Energy, the UK's nuclear generator, from EDF of France.
Speaking as Centrica unveiled a 20 per cent fall in 2008 post-tax profits to £904 million, Mr Laidlaw said that the deal “can only be done if there is compelling shareholder value”.
Centrica announced its aim to buy the stake in British Energy, the owner of one coal-fired and eight nuclear power stations, from EDF on September 24 in a non-binding letter of intent, after wholesale electricity had been trading at about £80 per MWhour. Prices have since collapsed - to about £41 yesterday - prompting some shareholders to question the merits of the deal.
Although EDF, which completed its £12.4billion acquisition of British Energy in January, is refusing to budge over the £3.1 billion price tag for the stake, the two companies are understood to be discussing a variety of options that would make the deal more attractive to Centrica's investors.
Mr Laidlaw said: “We will need to ensure, as we progress those negotiations with EDF, that the deal, across all its elements, adds value for Centrica shareholders, on terms which reflect both the short-term economic challenges and the long-term strategic benefits it would bring.”
He added: “We believe that the compelling strategic case for doing this deal still exists.”
Sweetener options could include the possibilities of an asset swap between Centrica and EDF or of British Energy paying out a special dividend to its shareholders after the transaction.
Another possibility would see Centrica taking a stake exceeding 25percent in certain parts of the business that it was buying into.
Talks between the two companies are continuing and both have said that they expect to finalise any deal by the end of March.
Mr Laidlaw has agreed to put the British Energy deal to a shareholder vote. Yesterday, he argued that the deal was strategically important because it gave Centrica a unique opportunity to bolster its power-generation portfolio, which would help to cut its reliance on bulk electricity contracts bought in the volatile wholesale power markets.
The deal would lift the proportion of Centrica's combined gas and power requirements covered by its own production from about 35 per cent now to about 50 per cent, he said.
However, analysts believe the deal requires prices of at least £60 per megawatt hour to make economic sense. Critics have suggested the cash could be used to make other acquisitions.
Yesterday, Centrica revealed that group operating profits for 2008 were broadly flat at about £1.94 billion, but said that it had been hit by a surging tax bill, which exceeded £1 billion for the first time last year. The bill left it with the highest total tax rate in the FTSE100, at 53 per cent of profits.
The profits from the British Gas residential business fell by 34 per cent to £379million, which Centrica attributed to a decision not to pass on the full impact of high wholesale prices to customers last year. This works out at only £17 per customer account after tax or £24 before tax.
Sam Laidlaw, Centrica's chief executive, yesterday raised for the first time the prospect that the plan could be jettisoned if it does not deliver value for shareholders.
Mr Laidlaw said that a slide in the wholesale price of electricity had altered the economics of a deal, although he said he remained committed to the group's plan to buy a 25 per cent stake in British Energy, the UK's nuclear generator, from EDF of France.
Speaking as Centrica unveiled a 20 per cent fall in 2008 post-tax profits to £904 million, Mr Laidlaw said that the deal “can only be done if there is compelling shareholder value”.
Centrica announced its aim to buy the stake in British Energy, the owner of one coal-fired and eight nuclear power stations, from EDF on September 24 in a non-binding letter of intent, after wholesale electricity had been trading at about £80 per MWhour. Prices have since collapsed - to about £41 yesterday - prompting some shareholders to question the merits of the deal.
Although EDF, which completed its £12.4billion acquisition of British Energy in January, is refusing to budge over the £3.1 billion price tag for the stake, the two companies are understood to be discussing a variety of options that would make the deal more attractive to Centrica's investors.
Mr Laidlaw said: “We will need to ensure, as we progress those negotiations with EDF, that the deal, across all its elements, adds value for Centrica shareholders, on terms which reflect both the short-term economic challenges and the long-term strategic benefits it would bring.”
He added: “We believe that the compelling strategic case for doing this deal still exists.”
Sweetener options could include the possibilities of an asset swap between Centrica and EDF or of British Energy paying out a special dividend to its shareholders after the transaction.
Another possibility would see Centrica taking a stake exceeding 25percent in certain parts of the business that it was buying into.
Talks between the two companies are continuing and both have said that they expect to finalise any deal by the end of March.
Mr Laidlaw has agreed to put the British Energy deal to a shareholder vote. Yesterday, he argued that the deal was strategically important because it gave Centrica a unique opportunity to bolster its power-generation portfolio, which would help to cut its reliance on bulk electricity contracts bought in the volatile wholesale power markets.
The deal would lift the proportion of Centrica's combined gas and power requirements covered by its own production from about 35 per cent now to about 50 per cent, he said.
However, analysts believe the deal requires prices of at least £60 per megawatt hour to make economic sense. Critics have suggested the cash could be used to make other acquisitions.
Yesterday, Centrica revealed that group operating profits for 2008 were broadly flat at about £1.94 billion, but said that it had been hit by a surging tax bill, which exceeded £1 billion for the first time last year. The bill left it with the highest total tax rate in the FTSE100, at 53 per cent of profits.
The profits from the British Gas residential business fell by 34 per cent to £379million, which Centrica attributed to a decision not to pass on the full impact of high wholesale prices to customers last year. This works out at only £17 per customer account after tax or £24 before tax.
Source: The Times
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