nuclear power plant

The French government is proposing 9.7 billion euros ($9.85 billion) to buy out EDF (EDF.PA), giving it complete control of Europe’s largest nuclear power operator as it deals with a continent-wide energy crisis.

In a statement issued on Tuesday, the finance ministry said that the government will pay EDF’s minority owners 12 euros per share, a 53 percent premium over the closing price on July 5, the day before the government declared its plan to completely nationalize the debt-laden firm.

By 0836 GMT, EDF shares had risen 15% to 11.80 euros after resuming trading on Tuesday following a one-week halt for details of the government acquisition proposal.

The state already controls 84 percent of EDF, which has been plagued by unanticipated outages at its nuclear fleet, delays and cost overruns in constructing new reactors, and government-imposed power pricing restrictions to protect consumers from skyrocketing energy bills.

The conflict in Ukraine has exacerbated the group’s dilemma, requiring it to purchase power on the market at historically high costs and sell it to rivals at lower prices.

France has said that nationalizing EDF would strengthen the security of its energy reserves as Europe seeks alternatives to Russian gas imports.

Rising energy costs have put pressure on European energy providers, and Germany moved earlier this month to bail out Uniper, the country’s largest importer of Russian gas. 

France, which should be exporting power at this time of year, is now importing from Spain, Switzerland, Germany, and the United Kingdom, and the supply shortage is expected to grow this winter. 

“Nationalisation is ultimately the only way to save the company and ensure electricity production,” said Ingo Speich, head of sustainability and corporate governance at Deka Investment, which has a tiny share in EDF. “This is a bitter but necessary step.”

With S&P forecasting EDF’s debt to reach close to 100 billion euros this year, a bondholder in the company said the potential takeover was a welcome indication of government backing.

However, the bondholder noted that much more needs to be done to stabilize the balance sheet.

According to a banker familiar with the situation, the state, which funded the majority of a 3 billion euro capital increase for EDF in the spring, will most likely have to infuse additional money shortly.

EDF was floated on the Paris stock market in 2005 for 33 euros per share, thus investors who purchased the stock at the time would have suffered a significant loss.

Nonetheless, observers emphasized that the government would only need to get 90% control of EDF in order to delist it.

“We think the offer looks attractive and has high probability of success,” Citi analyst Piotr Dzieciolowski said in a note.

By early September, the takeover bid will be submitted with the stock market regulator. According to a finance ministry source, the French government hopes to finish the delisting procedure by the end of October.

According to Reuters, the government would pay close to 10 billion euros to acquire the remaining 16 percent of EDF, after deducting outstanding debts and a premium for minority owners.

Source: Reuters

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