French energy giant EDF agreed to sell a stake in nuclear operator British Energy to Centrica, striking a partnership with the gas group to build a new generation of nuclear power stations in the UK.
Centrica will pay 2.3 billion pounds ($3.4 billion) for the 20 percent stake. The deal comprises 1.1 billion pounds in cash plus Centrica's 51 percent share in Belgian generation and supply business SPE, which it is transferring to EDF with a valuation of 1.2 billion pounds ($1.71 billion).
EDF and Centrica said on Monday they would form an 80/20 joint venture to build four new nuclear power stations in the UK, helping protect Centrica against volatile wholesale energy prices and making EDF less likely to suffer regulatory scrutiny following its takeover of British Energy.
It was imperative that both sides could agree this deal. It is central to Centrica's position in UK energy markets, while EDF knew that if it did not dispose of the stake it would face both regulatory and UK political pressure, Evolution analyst Lakis Athanasiou told Reuters.
Centrica has long been trying to boost its energy generation business to help protect its household supply arm British Gas. It has struggled to make money from the UK's biggest supplier of domestic gas and electricity when wholesale gas prices have risen in recent years.
The deal represents good value for Centrica shareholders, improves the strategic balance of our business and further underpins our green energy credentials, Chairman Roger Carr said in a statement.
Centrica shares were up 3.4 percent at 235.25 pence at 0813 GMT, valuing the business at nearly 12 billion pounds. EDF shares were down 2.7 percent.
EDF agreed to pay 12.5 billion pounds for British Energy in September last year after months of wrangling. The British government, which owned a 35 percent stake, viewed the French-owned group as the best candidate to lead its new nuclear program.
EDF agreed to sell Centrica a stake in British Energy at the time, partly to ease concerns that Britain's future energy supplies were being entirely passed into foreign hands. The deal was then complicated by a sharp fall in wholesale electricity prices -- a yardstick of BE's performance.
British Energy owns eight nuclear power stations and one coal plant in the UK, as well as land for potential new build.
Centrica said the sale of its stake in SPE would strengthen its balance sheet and give it scope for further deals.
The attractive price secured for the sale of SPE will help preserve our balance sheet firepower as we focus the group on growth opportunities in the UK and North America, Carr said.
EDF said that buying control of SPE would make it the second-largest generator in Belgium. The deals are expected to be completed toward the end of the third quarter.
EDF will continue to operate British Energy, while Centrica will have board representation at the UK nuclear power group and take part in the building of four new stations.
The two companies said they aim to construct and operate four European Pressurised Reactors (EPRs).
EDF will provide Centrica with an additional 18TWh of power at market prices over five years from 2011.
Centrica said in a separate statement that its earnings outlook for 2009 remained in line with expectations.
It said lower wholesale gas prices were positive news for its household business, although the same factor would hit operating profit from its upstream, or producing assets.
(Editing by Mike Nesbit, David Cowell, John Stonestreet)