Centrica is under fresh pressure to drop its £3.1 billion plan to buy a 25 per cent stake in British Energy, the UK's nuclear generator.
The owner of British Gas, which is expected to report an operating profit of just under £2 billion this week, is facing mounting opposition to the proposed purchase from EDF, after a collapse in wholesale energy prices, which critics say has destroyed the economic logic of the deal.
The Times understands that Sam Laidlaw, Centrica's chief executive, has been trying to persuade sceptical investors of the merits of the deal, the terms of which were announced in a non-binding memorandum of understanding in September, just before wholesale electricity prices and share values fell. He wants to pursue the deal because Centrica lacks its own electricity generation and has to buy much of its power on the wholesale market.
Several institutional shareholders and analysts argue that the £2.2 billion that Centrica raised to complete the transaction in a rights issue could now be better spent, for example, by buying distressed gas producers whose value has fallen in recent weeks.
For the British Energy deal to make economic sense, it needs wholesale electricity prices of more than £60 per megawatt hour, one City source said. They are at about £50 at present.
In a research note to clients, JPMorgan said that the deal would destroy shareholder value and wipe off about 13p, nearly 5 per cent, from Centrica's shares, which are trading at about 286p. However, the deal is likely to go ahead, JPMorgan said, because Centrica lacks strategic alternatives. A decision to drop the deal would be viewed “positively” by the market, it said.
Peter Atherton, Citigroup's European utilities analyst, called on Centrica to scrap the plan. “The world is full of chief executives who probably wish they had access to a time machine, which they could use to go back and unpick deals that they struck at the top of the boom,” he said. “Perhaps uniquely amongst CEOs, Sam Laidlaw effectively does have a time machine... Centrica can walk away from the proposed deal at minimal cost.”
Centrica has insisted that it is committed to the deal. “As we have previously indicated, we're having discussions with EDF regarding the British Energy stake and those are ongoing,” a spokesman said.
However, it is understood that the board is reserving the right to drop the deal if it no longer makes economic sense. The timetable could also slip beyond the end of March.
The owner of British Gas, which is expected to report an operating profit of just under £2 billion this week, is facing mounting opposition to the proposed purchase from EDF, after a collapse in wholesale energy prices, which critics say has destroyed the economic logic of the deal.
The Times understands that Sam Laidlaw, Centrica's chief executive, has been trying to persuade sceptical investors of the merits of the deal, the terms of which were announced in a non-binding memorandum of understanding in September, just before wholesale electricity prices and share values fell. He wants to pursue the deal because Centrica lacks its own electricity generation and has to buy much of its power on the wholesale market.
Several institutional shareholders and analysts argue that the £2.2 billion that Centrica raised to complete the transaction in a rights issue could now be better spent, for example, by buying distressed gas producers whose value has fallen in recent weeks.
For the British Energy deal to make economic sense, it needs wholesale electricity prices of more than £60 per megawatt hour, one City source said. They are at about £50 at present.
In a research note to clients, JPMorgan said that the deal would destroy shareholder value and wipe off about 13p, nearly 5 per cent, from Centrica's shares, which are trading at about 286p. However, the deal is likely to go ahead, JPMorgan said, because Centrica lacks strategic alternatives. A decision to drop the deal would be viewed “positively” by the market, it said.
Peter Atherton, Citigroup's European utilities analyst, called on Centrica to scrap the plan. “The world is full of chief executives who probably wish they had access to a time machine, which they could use to go back and unpick deals that they struck at the top of the boom,” he said. “Perhaps uniquely amongst CEOs, Sam Laidlaw effectively does have a time machine... Centrica can walk away from the proposed deal at minimal cost.”
Centrica has insisted that it is committed to the deal. “As we have previously indicated, we're having discussions with EDF regarding the British Energy stake and those are ongoing,” a spokesman said.
However, it is understood that the board is reserving the right to drop the deal if it no longer makes economic sense. The timetable could also slip beyond the end of March.
No comments:
Post a Comment