Shares in British Energy Group PLC (BGY.LN), the U.K.'s largest power producer, rose more than 4% Thursday on a report that Germany's RWE AG (RWEOY) has offered close to 700 pence a share in cash for the company, likely spurring a bidding war as other utilities seek to claim a stake in the company, analysts said Thursday.
RWE and British Energy declined to comment on an article in the Financial Times which said that RWE had made an indicative all-cash offer to buy British Energy at nearly 700 pence a share, valuing the company at around GBP11 billion.
At 0910 GMT, British Energy's shares were 4.3% higher, or 29 pence, at 732p on the news, while RWE shares traded 2% lower, or EUR1.67, at EUR79.35 in a broadly lower market.
RWE's reported offer "is exactly" where British Energy's stock was trading at prior to Thursday's opening, said utilities analyst Catharina Saponar of Nomura in London.
She said RWE will still have to compete with Electricite de France (1024251.FR) and others who have also expressed interest in bidding for the company.
EDF Energy, the U.K. arm of Electricite de France, is understood to have initially made an offer to buy only part of British Energy, because it was reluctant to buy the nuclear generator's aging advanced gas-cooled reactors, according to the FT report.
Centrica PLC (CPYYY), the U.K.'s largest retail energy supplier, had also previously submitted an all-share offer for the nuclear operator, but this is unlikely to be a favored option, the FT reported.
EDF is also considering a joint bid and is in early-stage discussions about teaming up with Centrica, according to the FT.
Centrica is understood to currently prefer the option of buying a stake in British Energy as part of a consortium, as opposed to a full takeover.
"Centrica lacks the financial fire power of its European rivals. Due to the market downturn it would be unable to do a straight takeover," an industry source said Thursday.
A London-based analyst who asked not to be named said that it would be "risky" to expect a fully-fledged bidding war since the U.K. government has expressed interest in multiple companies taking part in building the next generation of U.K. nuclear power plants.
He said RWE could acquire British Energy and then be forced to seek partnerships in new nuclear power plant projects.
RWE has earmarked around EUR5 billion for investment in the U.K. and has said that it intends to build more than 3 gigawatts of combined cycle gas turbine power plants and is targeting participation in at least two U.K. nuclear projects. RWE is boosting its investment in low-carbon generation capacity such as nuclear and renewables as the costs of CO2 trade is eating into its profits, analysts say.
The U.K. is likely to need around 25 gigawatts of new power generation capacity by 2025, equivalent to more than 30% of today's existing capacity, in order to replace its aging nuclear and coal-fired power stations.
British Energy's share price has risen 49% since Feb 12, outperforming a 4.3% rise in the FTSE 100 over the same period.
It hit a 19-month high of 755 pence Monday.
The rise is attributed to the increased interest in buying into the company in order to develop new nuclear reactors. The company owns some of the most suitable sites for new plants and it is also one of the few U.K. firms with a large number of experienced nuclear staff.