UPDATE 2-UK launches sale of uranium enrichment firm Urenco

Mon Apr 22, 2013 10:35am EDT

* Process to last months due to non-proliferation concerns

* Cameco, Areva, Westinghouse, Canadian fund cited as buyers

* Urenco value seen at up to 10 bln euros

LONDON, April 22 (Reuters) - The British government said on Monday it would sell some or all of its 33 percent stake in Urenco, the world's second-largest vendor of nuclear fuel.

Three countries hold equal stakes in the security-sensitive uranium enrichment concern - Britain, the Netherlands and Germany, whose share is held by utilities E.ON and RWE.

Urenco is estimated to be worth up to 10 billion euros ($13 billion) and several buyers have been reported to be ready to bid for a stake.

These include French nuclear group Areva, Canadian uranium miner Cameco Corp, reactor builder Westinghouse's Japanese parent Toshiba, and the Canada Pension Plan Investment Board (CPPIB).

Germany, Britain and the Netherlands, which set up Urenco more than 40 years ago, have a duty to ensure secret technology that could be used to make an atomic bomb does not fall into the wrong hands.

"The decision to proceed towards a sale comes after the government secured agreement from its Dutch and German partners," Britain's business ministry said in a statement.

The ministry added that the scale and timing of any sale had not yet been determined. "Any sale will only be concluded if the government is satisfied that the UK's security and non-proliferation interests can be protected and that value for money is achieved for the UK taxpayer."

Buyers will have to be approved by the three owners, as stipulated by the Almelo treaty that governs the firm.

"We are in talks with the British and German partners, but we don't have news on that subject yet," a Dutch economics ministry spokeswoman said. E.ON and RWE declined to comment.

A banker involved in the Urenco talks told Reuters last week he expects the deal to be concluded by year-end.

Morgan Stanley advises the UK government on the sale, while Bank of America Merrill Lynch is advising the German utilities.

With a market share of 31 percent, Urenco is the world's second-largest uranium enrichment firm after Russia's Tenex. Areva and U.S. USEC are also major nuclear fuel producers.

Urenco enriches uranium into nuclear fuel sold to power stations in Europe, the United States and Asia.

VALUATION CHALLENGE

Valuing Urenco is hard because of the firm's unique nature.

Urenco controls one of the world's most secret technologies but anyone acquiring the firm will not be able to access this because production of centrifuges, or enrichment machines, is lodged into a separate unit, the Enrichment Technology Company (ETC), which is owned 50-50 by Urenco and Areva.

Therefore, the acquisition of a Urenco stake would be an investment in a nuclear industry supplier, one with a steady earnings stream, as nuclear fuel contracts run up to 20 years.

But Urenco's order book has been hit by the 2011 Fukushima reactor disaster. At the end of 2012, orders had fallen by 2 billion euros to 18 billion, only about 11 times revenue, versus more than 15 times at end-2011 and nearly 17 times at end-2010.

Before Fukushima, Japan's 50 reactors used just over 10 percent of the world's refined uranium, but with all but two reactors offline, there is now overcapacity in the nuclear fuel industry.

Thus, a bet on Urenco is a bet that the global nuclear industry will recover some of the pre-Fukushima dynamic.

Urenco has been estimated to be worth up to 10 billion euros. British press reports have recently mentioned 3 billion pounds (3.5 billion euros).

"The UK could maybe secure 3 billion pounds if the buyers believe in new nuclear," said a senior UK-based industry source.

Privatisation has not played a big role in cutting Britain's deficit, but the Royal Mail is expected to float this autumn.

Urenco reported 2012 revenue up 23 percent at 1.6 billion euros ($2 billion), core EBITDA earnings up 29 percent to 1.01 billion euros and net income up 12 percent at 402 million.

Valued at 10 times EBITDA, Urenco would be worth about 10 billion, but Areva trades at just over four times EBITDA. Areva sells nuclear fuel, like Urenco, but also builds and services reactors, operates uranium mines and recycles waste.

An industry source estimates Urenco is worth at least 8 billion euros, but could be worth up to 10 billion for a buyer who sees synergies with his existing business.

That would be the case for Cameco, for whom uranium enrichment would complement its mining business. But even a partial stake in Urenco would be a big chunk to swallow for Cameco. That would be less of a problem for Westinghouse parent Toshiba, for whom Urenco would complement its reactor business.

Toshiba has never commented on reports about its possible interest in Urenco and some analysts wonder about the electronic giant's commitment to nuclear energy following the Fukushima disaster. [ID: nL4N0A216S]

For Areva, buying Urenco would remove a competitor in the nuclear fuel business and give it 100 percent control of ETC, which might run into antitrust issues.

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