UPDATE 6-France's EDF agrees $23 bln bid for British Energy

(Adds detail on mkt share)

By Vanessa Walters and John Bowker

PARIS/LONDON, Sept 24 (Reuters) - French utility EDF (EDF.PA) agreed a 12.5 billion pound ($23.14 billion) bid for British Energy BGY.L, sweetening its bid to control Britain's nuclear power industry after months of wrangling.

EDF, the world's biggest producer of nuclear energy and already the fifth largest electricity supplier in the UK, said on Wednesday it was offering 774 pence per British Energy share, or an alternative of 700 pence in cash plus one nuclear power note, a financial instrument linked to BE's future performance.

EDF, valued at $135 bln, predicted the deal would lead to cost savings of 200 million euros ($293 million) and lift group earnings in 2009. It said it had assurances from British Energy investors it would get at least 45.16 percent of the utility.

"Both the government and our largest shareholder, Invesco Perpetual, have provided commitments to accept the offer," British Energy Chief Executive Bill Coley told reporters.

The new offer is worth just 9 pence a share more than one rejected as too low by shareholders Invesco and M&G, which own around 22 percent of the company. The British government, which owns 35 percent, had accepted the earlier proposal.

The government became a part-owner of British Energy in 2003 after saving the company from collapse. It is responsible for around 20 percent of Britain's electricity supply.

For EDF, the takeover allows it to benefit from the growing British nuclear market where it plans to build four European Pressurised Reactors (EPR), kick-starting a new wave of nuclear building in the country.

Britain's nuclear power plants provide 19 percent of the country's electricity. However, all but one are due to close within 15 years.

"It will result in major investments but EDF can handle it," said Michael Sellam, fund manager at Iris Finance in Paris whose whose firm holds EDF shares.

The deal prompted Natixis analysts to raise their recommendation on EDF shares to "buy" from "reduce" saying the acquisition made "great industrial sense".

British Energy shares rose as much as 7.4 percent to 777.50 pence and were up 6.15 percent at 768.50 pence at 1426 GMT. EDF was 4.2 percent higher at 52.25 euros.

"It is positive for EDF and takes away the risk that they will pay off the wall, and the price is reasonable," a London-based analyst said. "There is clearly value in nuclear and building nuclear plants but it is quite long-term."

SWEETENER

Reluctant shareholders may have been won around by the option to receive a nuclear power note which means they stand to profit if, as they suspect, BE's earnings are boosted in the long-term by energy prices remaining high.

"The CVR (Contingent Value Rights) instrument made the offer acceptable to shareholders who had much more bullish assumptions on British Energy output. It could make payments over the very long term, about 10 years," said a source involved in the talks.

One BE shareholder ranking among its 10 biggest investors said recent market turmoil also helped convince doubters.

"It would not be wrong to assume that subsequent market events have concentrated the minds on the merits of some bid rather than no bid," the shareholder said.

At the same time British Gas-owner Centrica (CNA.L) said it was in talks with EDF to buy a 25 percent stake in British Energy at the same price per share as EDF, alleviating concerns about Britain's nuclear industry falling into foreign hands.

It would also mean less volatile electricity prices, "which has to be good for our customers", Centrica Chief Executive Sam Laidlaw told Reuters. [ID:nLO140638]

Centrica buys in gas and electricity because it does not produce enough to meet growing demand from its 16 million customers but is seeking to increase production and reduce its exposure to wholesale price volatility.

Merrill Lynch advised EDF on the deal while Rothschild advised British Energy and UBS advised the government. EDF also said it had hired seven banks to arrange a new 11 billion pound loan that will help pay for BE. [ID:nLO121387]

BRITISH INTERESTS

The British government, which did not want British Energy to fall into the hands of a single owner, welcomed the deal, describing it as good value and a significant step towards the building of a new generation of nuclear plants.

"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," Prime Minister Gordon Brown said in a statement.

Brown's administration has made building a new generation of nuclear power stations a central plank of its plans to tackle climate change and reduce Britain's reliance on imported oil and gas as energy demand increases and natural resources diminish.

EDF Chairman Pierre Gadonneix said the deal paved the way for investment in the UK. He told reporters in Paris the company still had the capacity to do deals globally.

The GMB union representing workers in the nuclear industry welcomed the EDF bid because of the promise of new investment but consumer watchdog Energywatch warned of less competition in Britain's energy market.

"This purchase will concentrate more power in the hands of the big six energy companies," Energywatch said in a statement.

For a FACTBOX on EDF's global presence, click on [ID:nLO660661]

For a FACTBOX on British Energy, click on [ID:nLO47185]

(Additional reporting by Philip Waller and Raji Menon in London and Benjamin Mallet and Sudip Kar-Gupta in Paris, writing by Paul Hoskins; Editing by Hans Peters, Elaine Hardcastle) (vanessa.walters@reuters.com; +331 (4949 5331; Reuters Messaging: vanessa.walters.reuters.com@reuters.net)) ($1=.5401 Pound) ($1=.6823 Euro)