* Government supports EDF's £12.5 billion offer for British Energy as launch
of new era for low carbon nuclear power
* Plans for four new reactors signal significant move to cut UK reliance on
imported fossil fuels
* Government reaches agreement on land deal to encourage at least two new
nuclear operators in first wave
The Government today welcomed EDF's proposed £12.5 billion takeover offer for
British Energy Group plc (British Energy) and the British Energy Board's
recommendation of the offer to its shareholders. The Government has committed to
accept the cash offer of 774p per share for its 36 per cent stake held by the
Nuclear Liabilities Fund (NLF), subject to certain conditions.
Prime Minister Gordon Brown said: "New nuclear is becoming a reality. This
deal is good value for the taxpayer and a significant step towards the
construction of a new generation of nuclear stations to power the country.
Nuclear is clean, secure and affordable; its expansion is crucial for Britain's
long term energy security, as we reduce our oil dependence and move towards a
low carbon future."
Business Secretary John Hutton said: "Nuclear has the clear potential to play
a central role in giving our country a diverse energy mix. It will be
indispensable for our long term energy security.
"Our ambition is to have more than one nuclear operator and so to accelerate
the building of new nuclear power stations. There are strong signals of an
appetite for this from the power industry and today's announcements mean a
number of sites could be made available for others to play a part.
"EDF's recommended £12.5 billion bid to buy British Energy would be one of
the largest foreign direct investments ever made in Britain and demonstrates the
attractiveness of the UK market to the private sector. And today is just the
start. EDF's plans to build four new nuclear reactors will also create a wide
range of jobs and a wealth of opportunities for Britain's manufacturers."
EDF also announced today that as well as continuing to operate British
Energy's existing fleet of eight nuclear power stations it proposes a further
substantial investment to build four new reactors with total generating capacity
of 6.4GW of electricity. It wants to construct and operate two reactors each at
Hinkley Point in Somerset and Sizewell in Suffolk and has said that under its
plans the first new reactor could be on-stream by the end of 2017.
The Government has reached agreement with EDF that the company will sell land
to other potential nuclear operators at some specific sites in certain
circumstances. This move is expected to accelerate development of new nuclear
power stations in the UK by making desirable sites available to at least one
further potential operator. The Nuclear Decommissioning Authority (NDA) has
announced that it intends to make available for sale through a competitive sale
process some specific sites of its own that could be suitable for new nuclear
The terms of the proposed EDF offer, which is still subject to shareholder
acceptance and regulatory approval, represent value for money for the taxpayer.
The deal would mark the successful culmination of the restructuring of British
Energy and provide funding for the future decommissioning of the company's eight
existing nuclear power stations.
Under an agreement with the Government, EDF has confirmed that, if the offer is
successful, it will sell land to other potential nuclear operators in certain
pre-agreed circumstances, depending principally on the progress of planning
consents at Hinkley Point and Sizewell. This agreement covers British Energy's
land at Bradwell (as well as any land at Bradwell which EDF may acquire from the
NDA) and land alongside existing stations at either Dungeness or Heysham.
A process is also under way to gauge interest in land belonging to the NDA,
some of which could also be used for new nuclear build. The NDA earlier this
month announced it will offer for sale land it owns at Wylfa, Oldbury and
Bradwell via a competitive sale process. EDF will not be permitted to bid for
the NDA land at Wylfa and Oldbury under this process, but it will be allowed to
bid for the NDA land at Bradwell. The NDA has entered into a conditional
agreement with EDF concerning the simultaneous marketing of land the latter owns
at Wylfa alongside the NDA's land at Wylfa. NDA-owned land near the Sellafield
site is also being actively considered and will be subject to a separate
Neither this NDA land sale process nor the sale of British Energy to EDF
pre-empts or prejudices proper consideration of proposals for power stations
under the Government's Strategic Siting Assessment and the planning system. The
Strategic Siting Assessment will determine which of those sites nominated by
developers should be included in a Nuclear National Policy Statement for
The four new reactors that EDF is proposing to build would generate clean
electricity to meet more than 13% of forecast UK electricity demand by the early
2020s and equate to a saving of more than 14 million tonnes of CO2 emissions a
year, helping tackle climate change.
Today EDF, which has been established in the UK for ten years and already
employs 13,000 people in its UK subsidiary EDF Energy, said that significant new
employment and career opportunities relating to new build would be created by
its investment. It has committed to maintaining British Energy's East Kilbride
office and anticipates that the staff at East Kilbride and other British Energy
locations including Barnwood would benefit from the new opportunities.
NUCLEAR LIABILITIES FUND
The Government's stake in British Energy is held by the Nuclear Liabilities Fund
(NLF) which is a segregated fund with its own trustees which was set up at the
time of British Energy's privatisation in 1996 to meet the eventual
decommissioning costs of its existing nuclear power stations.
In 2002, when British Energy was facing an uncertain future, the Government
stepped in to support a restructuring of the company in order to ensure the
safety of nuclear power and the security of the country's electricity supplies.
The restructuring agreements which cover the nuclear decommissioning liabilities
of British Energy will remain in place and will conditionally be amended to
reflect ownership of British Energy by EDF and the development of new nuclear
generation. As part of the restructuring, which came into effect in 2005, the
NLF was given £275 million in British Energy bonds and the contractual right to
receive around two thirds of its annual adjusted free cash flow. This
contractual right is convertible into shares in British Energy. In June 2007,
the NLF converted approximately half of this 'cash sweep' into shares in British
Energy which were sold on to institutional investors, leaving the NLF with a
stake of around 36 per cent in the company.
A sale of this remaining stake at the offer price of 774p per share announced
today would raise proceeds of approximately £4.4 billion for the NLF. Together
with its other assets, these funds (amounting in aggregate to about £8 billion)
should, at today's prices, more than cover the current estimated costs of
decommissioning liabilities of British Energy's existing nuclear power stations.
The costs of cleaning up any new nuclear power stations will be required to be
met by their operator.
Completion of the transaction is expected to be in the fourth quarter of 2008
or in early 2009, subject to clearance by European competition authorities and
other customary conditions. It is expected that the UK's Office of Fair Trading
and Ofgem will feed their views on the proposed transaction into the European
All nuclear sites in the UK are and will continue to be subject to the
stringent regulatory regime (including oversight by the Nuclear Installations
Inspectorate, the Environment Agency, the Scottish Environment Protection Agency
and the Office for Civil Nuclear Security) to ensure they operate in accordance
with high safety, security and environmental standards.
1. EDF is making a Cash Offer of 774p pence for each British Energy Ordinary
Share. In addition a Partial CVR Alternative will also be made available under
which eligible British Energy Ordinary Shareholders may elect to receive,
subject to availability, in respect of all or part of their holding of British
Energy Ordinary Shares, 700p in cash and one Nuclear Power Note (issued by
Barclays Bank PLC) for each British Energy Ordinary Share (together with the
Cash Offer, this makes up the "Ordinary Offer"). The Nuclear Power Notes will be
issued in consideration for the issue to Barclays by EDF of the underlying EDF
CVRs. This Partial CVR Alternative is intended to afford eligible British Energy
Ordinary Shareholders economic exposure to wholesale power prices and the output
of British Energy's existing nuclear fleet, subject to minimum, maximum and
The British Energy Board intends unanimously to recommend that British Energy
shareholders accept the Cash Offer and consider, having regard to certain
factors regarding the Partial CVR Alternative, whether to elect for the Partial
CVR Alternative. The British Energy Directors have irrevocably agreed to accept
the Ordinary Offer in respect of their entire beneficial holdings of British
Energy Ordinary Shares.
2. The NLF (at the direction of the Secretary of State) has entered into an
irrevocable undertaking with EDF to exercise the NLF conversion right and accept
the offer in respect of its entire resulting holding provided that the offers
have been or will, upon receipt of such acceptance from the NLF, be declared
unconditional in all respects.
The irrevocable undertaking from the NLF will fall away if, amongst other
things: (i) the acquisition lapses or is withdrawn or is not effective on or
before the 180th day from 24th September; (ii) the British Energy Board
withdraws or in any material way qualifies its recommendation of the Cash Offer
before the irrevocable undertaking takes effect; or (iii) there has been an
amendment to the terms of the acquisition which in the reasonable opinion of the
Secretary of State results in the Cash Offer being less favourable than the
Partial CVR Alternative and the Secretary of State has not served notice on EDF
that the Partial CVR Alternative is to be extended to the NLF.
3. It will be for the energy companies to obtain all necessary planning and
regulatory consents and to fund, develop and build new nuclear power stations in
the UK, including meeting the full costs of decommissioning and their full share
of waste management costs.
4. British Energy is the UK's largest electricity generator employing over
6,000 people. British Energy owns and operates eight nuclear power stations in
the UK: seven of these are Advanced Gas-cooled Reactor (AGR) stations, located
at Dungeness, Hartlepool, Heysham (two stations), Hinkley Point, Hunterston,
Torness and the only civil Pressurised Water Reactor (PWR) power station in the
UK, located at Sizewell in Suffolk. British Energy also owns and operates the
Eggborough coal-fired power station in Yorkshire. British Energy's total
installed capacity is 10.6GW (8.7GW from nuclear generation) with delivered
output of 58.4TWh (of which 50.3TWh comprises nuclear output) for the year ended
March 2008. British Energy is the lowest carbon emitter of the UK's major
5. EDF is an integrated energy company with a presence in a wide range of
electricity related businesses: generation, transmission, distribution, sale and
energy trading. EDF is France's historical electricity operator and has a strong
position in the three other main European markets (Germany, the United Kingdom
and Italy), making it one of Europe's main electricity concerns as well as a
recognised player in the gas industry. With worldwide installed power capacity
totalling 126.7GW (124.5GW in Europe, 63GW from nuclear generation) and global
generation of 610.6TWh (418.0TWh from nuclear generation) in 2007, it has the
largest generating capacity of all the major European energy corporations with
the lowest level of carbon dioxide emissions due to the significant proportion
of nuclear and hydroelectric power in its generation mix. EDF employs over
158,000 people worldwide. EDF supplies gas, electricity and associated services
to more than 38 million customer accounts worldwide (including more than 28
million in France and 5.5 million in the UK).
6. The Government holds special shares in some of the British Energy group
companies. As provided for in the rights attaching to the special shares, the
Government has consented to EDF owning more than 15% of the share capital of
British Energy. The special shares will remain in place following the completion
of the acquisition.
7. The Government has been advised by UBS Limited and the NLF has been
advised by Lazard & Co., Limited.
UBS Limited is acting as financial adviser to the Government in connection
with the transaction described in this announcement and no-one else and will not
be responsible to anyone other than the Government for providing the protections
offered to clients of UBS Limited or for providing advice in relation to the
transaction described in this announcement or the contents of this announcement.
Lazard & Co., Limited is acting as financial adviser to the NLF in connection
with the transaction described in this announcement and no-one else and will not
be responsible to anyone other than the NLF for providing the protections
offered to clients Lazard & Co., Limited or for providing advice in relation to
the transaction described in this announcement or the contents of this
8. For more information see
9. The Department for Business Enterprise and Regulatory Reform helps UK
business succeed in an increasingly competitive world. It promotes business
growth and a strong enterprise economy, leads the better regulation agenda and
champions free and fair markets. It is the shareholder in a number of
Government-owned assets and it works to secure, clean and competitively priced
About the Author
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Article Published/Sorted/Amended on Scopulus 2008-09-24 13:29:30 in Business Articles