August 7, 2008

EDF Has Investment Options If British Deal Fails DEALTALK

By Marie Maitre

If Electricite de France fails to persuade British Energy shareholders to accept its bid, EDF will not be short of options or cash to build on its global nuclear leadership and develop such new businesses as natural gas.

EDF was set last Friday to announce an all-cash offer of pound(s)12 billion, or $23.4 billion, for British Energy after months of talks and securing approval from the British government, which owns 35 percent of the company, a British nuclear power plant group.

But institutional investors in British Energy unexpectedly rejected a bid they deemed too low, sending EDF back to the negotiating table and threatening to derail a deal some see as crucial for Britain's nuclear rebirth and EDF's expansion plans.

Although both companies are still talking, industry analysts say they believe that EDF is unlikely to raise the stakes and risk overpaying for British Energy, the owner of most of Britain's existing nuclear power plants and whose land around existing sites is expected to house new developments.

"EDF doesn't seem ready to make an acquisition at any cost, and this is rather good news for investors," said Jacques-Antoine Bretteil, a fund manager at International Capital Gestion.

But Britain is only one of four countries that EDF is focusing on for its international development, with nuclear plans in the United States, South Africa and China, where it will run two new- generation reactors with China Guangdong Nuclear Power Group.

EDF has set aside euro 35 billion, or $54 billion, for investments from 2008 to 2010, and if this is not used for acquisitions, it will be spent on industrial projects to bolster internal growth.

Colette Lewiner, an energy sector expert at the consultancy Capgemini, said EDF, in its core nuclear power business, had "many irons in the fire" with its international development and planned to add to its 58 reactors in France with one, and maybe two, new- generation European pressurized reactors.

"They will need money for these projects," she said. "Just in Britain, they must buy land and build reactors. We're talking about a few billion euros for each one, which is not trifling."

EDF also has projects to build a natural gas business to counter the threat of losing customers to the newly merged GDF Suez group, which can offer a one-stop shop for electricity and gas.

EDF also needs to invest in gas-fired plants, which can be switched on and off fast to meet peak electricity demand.

"If you want to operate these gas-fired plants in a profitable way, you need to have good access to gas," said Koen Dierckx, an analyst at the brokerage firm KBC Securities in Brussels.

EDF in June received authorization to build one of Europe's biggest liquefied natural gas terminals in the French port of Dunkirk. Experts say it may seek to secure gas imports from such producers as Qatar, or invest in gas fields.

Dierckx estimated EDF could spend nearly euro 5 billion to finance a thrust into the gas sector, roughly the price of the Belgian gas company Distrigas, which EDF lost to Eni of Italy in a bidding process organized by Suez in June.

"Distrigas was definitely a very interesting asset that was on the market," Dierckx said. "Gas Natural is another one, but with Union Fenosa now they will probably become too big," he said, referring to a recent deal by Gas Natural of Barcelona to buy a 45 percent stake in the Spanish electricity producer from Actividades de Construccion y Servicios, a debt-laden Spanish building company.

"They may just try to grow the gas business organically with not so much of a focus on acquisitions at this time," he added.

Originally published by Reuters.

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