The company is set to confirm it has agreed a price with EDF, the French energy group, for a stake in British Energy
Centrica has negotiated down the price that it will pay EDF for a stake in British Energy, The Times has learnt.
The company will confirm this morning that it has reached agreement with the French power group over its plans to take a stake in the nuclear electricity generator.
Instead of paying £3.05 billion for a 25 per cent stake in British Energy, as agreed last September, Centrica is now paying the equivalent of £2.3 billion for a 20 per cent stake, The Times understands.
This consists of £1.1 billion in cash and Centrica's 51 per cent stake in Société de Production d'Electricité (SPE), the Belgian power generator, which has been valued at £1.2billion.
This is an asset that EDF has long coveted and the exit price represents 14 times earnings before interest, taxation, depreciation and amortisation.
EDF said last September that it would pay £12.5billion for British Energy, with Centrica chipping in a quarter of that sum to take an equivalent stake. Centrica raised £2.2 billion in a rights issue three months later to help to pay for the deal.
However, after a sharp drop in electricity prices hit British Energy's expected revenues, Centrica's shareholders urged the company not to overpay and insisted that it renegotiate the deal's terms.
Its original price was agreed in a non-binding memorandum of understanding shortly before the collapse of Lehman Brothers sent global markets plunging.
EDF, which is under pressure to reduce debt after the British Energy acquisition and its purchase of a stake in the nuclear assets of US energy group Constellation, did not want to renegotiate the terms. However, it is understood that a deal was signed in Paris last night, with confirmation expected at Centrica's annual meeting today.
Centrica, whose British Gas arm last week reduced electricity prices for 4.5million customers, held a board meeting on Thursday ahead of a trading update and the company's annual meeting today.
Tina Cook, of Charles Stanley, the broker, said: “It does seem as if we are reaching some sort of conclusion and that an announcement is imminent.
“It seems SPE will be thrown into the mix and this would be attractive to EDF - as it had previously expressed interest in buying the business.”
Sam Laidlaw, Centrica's chief executive, has previously emphasised that he would do a deal only if it was in the interests of all shareholders.
Mr Laidlaw has also pointed to Centrica's other options as it seeks to secure energy supply for the decades ahead. Centrica recently snapped up a 22 per cent stake in Venture Production, the specialist North Sea gas producer, although it is understood that the company has no plans to launch a full bid.
A takeover of Venture would, nonetheless, meet Centrica's stated aim of expanding its upstream production operations as a way of insulating itself from volatility in wholesale prices.
Centrica is keen to have a stake in British Energy - whose eight nuclear plants generate more than one sixth of the UK's electricity - because it currently generates only about 30 per cent of the electricity that it needs to supply its customers. This forces the company to buy power in the wholesale energy market, which has, during the past two years, proved expensive and has pushed British Gas into the red at times.
It is understood that after the British Energy transaction, Centrica will be self-sufficient for more than 45percent of British Gas's electricity needs.
Since Centrica has spent only half the rights issue proceeds on the British Energy acquisition, speculation will grow that it will spend the balance on upstream assets, including Venture.
Neither EDF nor Centrica would comment last night.
The company will confirm this morning that it has reached agreement with the French power group over its plans to take a stake in the nuclear electricity generator.
Instead of paying £3.05 billion for a 25 per cent stake in British Energy, as agreed last September, Centrica is now paying the equivalent of £2.3 billion for a 20 per cent stake, The Times understands.
This consists of £1.1 billion in cash and Centrica's 51 per cent stake in Société de Production d'Electricité (SPE), the Belgian power generator, which has been valued at £1.2billion.
This is an asset that EDF has long coveted and the exit price represents 14 times earnings before interest, taxation, depreciation and amortisation.
EDF said last September that it would pay £12.5billion for British Energy, with Centrica chipping in a quarter of that sum to take an equivalent stake. Centrica raised £2.2 billion in a rights issue three months later to help to pay for the deal.
However, after a sharp drop in electricity prices hit British Energy's expected revenues, Centrica's shareholders urged the company not to overpay and insisted that it renegotiate the deal's terms.
Its original price was agreed in a non-binding memorandum of understanding shortly before the collapse of Lehman Brothers sent global markets plunging.
EDF, which is under pressure to reduce debt after the British Energy acquisition and its purchase of a stake in the nuclear assets of US energy group Constellation, did not want to renegotiate the terms. However, it is understood that a deal was signed in Paris last night, with confirmation expected at Centrica's annual meeting today.
Centrica, whose British Gas arm last week reduced electricity prices for 4.5million customers, held a board meeting on Thursday ahead of a trading update and the company's annual meeting today.
Tina Cook, of Charles Stanley, the broker, said: “It does seem as if we are reaching some sort of conclusion and that an announcement is imminent.
“It seems SPE will be thrown into the mix and this would be attractive to EDF - as it had previously expressed interest in buying the business.”
Sam Laidlaw, Centrica's chief executive, has previously emphasised that he would do a deal only if it was in the interests of all shareholders.
Mr Laidlaw has also pointed to Centrica's other options as it seeks to secure energy supply for the decades ahead. Centrica recently snapped up a 22 per cent stake in Venture Production, the specialist North Sea gas producer, although it is understood that the company has no plans to launch a full bid.
A takeover of Venture would, nonetheless, meet Centrica's stated aim of expanding its upstream production operations as a way of insulating itself from volatility in wholesale prices.
Centrica is keen to have a stake in British Energy - whose eight nuclear plants generate more than one sixth of the UK's electricity - because it currently generates only about 30 per cent of the electricity that it needs to supply its customers. This forces the company to buy power in the wholesale energy market, which has, during the past two years, proved expensive and has pushed British Gas into the red at times.
It is understood that after the British Energy transaction, Centrica will be self-sufficient for more than 45percent of British Gas's electricity needs.
Since Centrica has spent only half the rights issue proceeds on the British Energy acquisition, speculation will grow that it will spend the balance on upstream assets, including Venture.
Neither EDF nor Centrica would comment last night.
Source: The Times
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