Asset swap

2 min read

Centrica has announced plans to acquire a 20 per cent interest in British Energy, the operator of eight nuclear power stations acquired by EDF in January 2009. EDF and Centrica will also form an 80/20 joint venture to pursue a planned programme to build four new nuclear power stations in the UK.

In turn, EDF plans to acquire Centrica's 51 per cent stake in Belgian generation and supply business SPE.

The investment and acquisition plans are still subject to regulatory approvals in the UK and in Europe, and approval by Centrica’s shareholders. The general meeting is planned for June 2009.

If the plan goes through, Centrica will invest £2.3bn for a 20 per cent stake in Lake Acquisitions, the vehicle through which EDF acquired British Energy. The investment represents a six per cent discount compared to the price of EDF's offer for British Energy.

Despite Centrica’s 20 per cent stake, EDF will continue to operate British Energy, but Centrica will have board representation and other appropriate governance rights.

The agreement between the two companies also states that EDF will provide Centrica with an additional 18TWh of power at market prices over five years from 2011.

EDF and Centrica will also form a separate 80/20 joint venture through which they will undertake the pre-development activities for a planned nuclear new-build programme.

The companies hope to construct, operate and decommission four European Pressurised Reactors (EPRs). In 2008, EDF announced its intention to build four EPRs in the UK with the aim of having the first reactor operational by the end of 2017. These new reactors are expected to form part of the UK’s future energy mix and will in part replace British Energy’s existing power stations, which are scheduled to be decommissioned between 2014 and 2035.

Although the initial plan for the new nuclear build joint venture between Centrica and EDF consists of four new EPRs, further reactors may be built by the two companies.

EDF’s acquisition of Centrica’s 51 per cent stake in SPE will reportedly cost the energy company £1.2bn.

With the asset swap of 20 per cent of British Energy for 51 per cent of SPE, the net cash consideration to be paid by Centrica to EDF for the transactions will be approximately £1.1bn. It is expected to take to the end of the third quarter of 2009 to complete the transaction.

Pierre Gadonneix, chairman and chief executive of EDF, said: 'This transaction, part of the group's strategy of developing its positions in Europe, will enable leading British generator, Centrica, alongside EDF, to take part in the relaunch of nuclear energy in the UK through an industrial partnership in a form already pioneered by EDF in China and the US.

'This transaction will also help balance both the generation and supply businesses of EDF Energy. The asset swap in this deal will also see the EDF group reinforce its Benelux presence by becoming the second-largest generator in Belgium.’