Two major shareholders in British Energy are understood to have vetoed the £12 billion bid by French energy giant EDF which threw the Government's nuclear programme into chaos last night.

Sources close to EDF said that two shareholders were holding out for a higher price due to the surging cost of fuels, but declined to name them, but they are thought to be fund manager Invesco and UK insurer Prudential.

Invesco owns almost 15 per cent of British Energy, Prudential has 7.2 per cent. Deutsche Bank owns a 7.56 per cent stake.

EDF, which walked away from takeover talks in the early hours of this morning, is understood to have proposed two offers: a 765p cash bid or 700p in cash plus further payments based on performance.

These were put to British Energy’s board late on Thursday, but were rejected. Shares in British Energy fell 5.89 per cent, or 43p, to 686.5p in early trading.

The group said this morning that conditions allowing for a “major development” in the UK were “not met”. It had been widely expected to announce a bid for British Energy this morning after months of talks.

British Energy held talks with several energy companies earlier this year, including RWE of Germany, Iberdrola of Spain and Vattenfall of Sweden, but EDF became the frontrunner to buy the group after making an offer of 680p a share in May.

This was rejected as too low, but the two sides continued talking.

Shortly before midnight last night EDF released a statement saying that conditions were not right for “a major development in Great Britain”.

EDF were keen to stress last night that while talks over a full bid for British Energy had collapsed, it could be interested in other UK nuclear deals in future.

A source close to the talks said: "EDF's interest in the industry in the UK pre-dates discussions with British Energy. We have other options but are still interested in discussion with BE."

The takeover of British Energy, which operates eight ageing nuclear power stations and produces one sixth of Britain’s electricity, was seen as critical to the Government’s plans to replace the country’s reactors. It owns 35 per cent of British Energy. EDF had proposed building four nuclear power stations using French technology.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive