British nuclear plan in disarray as EDF pulls back

By John Bowker and Marie Maitre

LONDON/PARIS (Reuters) - Britain's plans to build a string of new nuclear power stations have been dealt a huge blow after French power giant EDF (EDF.PA) scratched plans at the last minute for a 12 billion pound ($23.8 billion) deal to buy British Energy BGY.L.

EDF said on Friday it had failed to reach agreement on taking over the nuclear power operator, which according to a source close to the matter came after leading private shareholders in British Energy said the deal was too low.

Shares in the British company slumped 5 percent to 695 pence by 4:46 a.m. EDT, although the source said talks between the pair were ongoing.

The shock announcement, which could throw Britain's plans to re-launch its nuclear program into disarray, came after a separate source briefed on the matter said the EDF board agreed a bid on Thursday night.

EDF had all but secured approval from British Energy for a full cash offer in the region of 775 pence a share, with the potential of future payments based on electricity prices, the source told Reuters, but some investors then rejected the offer.

The deal would have netted the British government, a 35 percent stakeholder in British Energy, around 4.6 billion pounds -- officially to go towards the clean-up of Britain's declining nuclear power sector.

Business Minister John Hutton said he was disappointed the deal did not go through as the government had been keen to accept it. "We thought it was a good deal, we were ready to accept the deal," he told BBC Radio.

The government gave the green light for new nuclear power stations in January, but British Energy is seen as too small and unskilled to build them on its own. An auction for the company was then triggered, but the hugely experienced EDF quickly emerged as the only serious bidder.

EDF CEO Pierre Gadonneix told a joint news and analyst conference that "financial conditions" were not currently there for a move into Britain, which would have been the company's biggest foreign expansion to date.

"I confirm our ambition to be a major actor of the nuclear rebirth in Britain. We have been working on that for three years and we have taken measures to reach this target," he said.

"The conditions, notably financial ones, allowing a major development of EDF in Britain are not there," he added, while ruling out a hostile bid.

A source close to EDF said 15-percent shareholder Invesco was likely to have been involved in deciding whether to block the deal. An Invesco fund manager declined to comment.

The announcement of EDF's withdrawal, which came just before midnight on Thursday, followed months of negotiations.

British Energy said in a statement it had held advanced discussions with an unidentified suitor and added there was no certainty an offer would be made.

The company supplies around a fifth of the UK's electricity. New nuclear power stations are currently seen as the only carbon-free solution to Britain's dwindling supplies of oil and gas.