BRITISH ENERGY could abandon its £11 billion auction and instead parcel the company’s nuclear development sites into a series of joint ventures.

The group, which is chaired by Sir Adrian Montague, has been working on the joint-venture plan in parallel with the auction of the nuclear power company – an auction that appears to be doomed after the rejection of an offer last week from France’s EDF.

Shareholders representing at least 25% of the company’s stock are said to support the joint-venture option, which they believe will create more long-term value than a sale.

The rejection of the EDF offer came after intensive lobbying from some of British Energy’s biggest shareholders. They believe the bid, priced at about 700p a share, substantially undervalues the company. They argue EDF’s proposal does not take full account of soaring wholesale electricity prices, which will lead to bumper profits.

Some analysts have placed a value of £11 per share on British Energy. A number of sizeable shareholders are known to have increased their stand-alone valuation on the business since the auction process began, simply to account for rising power prices.

While EDF may be willing to raise its offer, it is thought to be reluctant to get close to the levels being demanded by the shareholders. EDF believes it is misconceived to apply the high price of today’s energy to the future value of the British nuclear industry.

The French power giant is said to be concerned about the prospect of overpaying for British Energy’s legacy assets, given the multi-billion pound investment required to fund the construction of new nuclear power stations. If it cannot reach a conclusion with the company it will walk away. One of British Energy’s top five investors described the gap between EDF’s pricing and shareholders’ demands as “unbridgeable”.

A number of other European utility giants considered offers for the company, including RWE of Germany and Spain’s Iberdrola. EDF, however, was the last remaining suitor for the entire business at the time its offer was rejected last week.

British Energy’s advisers at NM Rothschild began investigating joint ventures a year ago, which led to a number of offers for the whole company and thus to the auction.

After seeing the valuations put forward by the potential bidders, investors began pressing Montague to “return to plan A” and reexamine the joint-venture plans.

EDF has already bought considerable tracts of land adjacent to many of British Energy’s sites, to aid the construction of new nuclear power plants, which could strengthen its negotiating position.

Suez, which is expected to move closer to its merger with Gaz de France this week, is also likely to seek a role. So too will Britain’s energy group Centrica.

The British Energy sites are not the only locations in the UK where new nuclear power plants could be built. Both the Nuclear Decommissioning Authority and BNFL, the owner of Sellafield, have suitable land. British Energy’s sites, however, are better suited to new reactor designs.

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