Department for Business, Innovation and Skills
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Government welcomes EDF's £12.5 billion take over offer for British Energy and investment plan to secure UK energy supplies
* 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 build.
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.
LAND AGREEMENTS
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 statement.
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 planning purposes.
EDF PROPOSALS
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 competition process.
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.
Notes for Editors
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 cumulative constraints.
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 electricity generators.
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 announcement.
8. For more information see http://www.british-energy.com, http://www.nda.gov.uk and http://www.edf.com
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 energy supplies.
