Key British Energy shareholders have rejected an increased offer from EDF, scuppering a deal that might have kick-started the construction of new nuclear power plants in the UK.

EDF announced on 1st August that it had so far failed to reach agreement with British Energy on its £12 billion bid for the UK nuclear generator. It had been widely expected to unveil the deal at its half-yearly results.

It has since emerged that two key British Energy shareholders – fund managers Invesco and M&G – raised objections on the basis of the value of EDF’s offer. EDF offered 765 pence/share for British Energy but altered the offer to include a sweetener to appease Invesco and M&G, which together control 22 per cent of the UK utility’s shares.

But M&G and Invesco are reported to have rejected the ‘sweetener’ option, which was based on an offer of 700 pence/share plus a share of future profits. It is unclear whether EDF and British Energy will continue discussions.

The failure of the bid is a blow to the British government’s plans to get construction of new nuclear power plants in the UK off to a quick start. EDF is intending to build four new nuclear plants in the UK and if it calls off discussions with British Energy, it is likely that it will need to seek alternative sites for the projects and probably alternative partners too.

The British government, which owns around 35 per cent of British Energy, saw the tie-up between the two companies as a good fit and “a sensible way to take forward new nuclear plans in the UK.”

“I am disappointed that talks between British Energy and EDF have not yet been successful. We thought it was a good deal and we were ready to accept. EDF is the world’s largest nuclear operator,” said UK Business Secretary John Hutton.

The UK is pushing an aggressive expansion plan to build a new fleet of nuclear power plants to replace its aging reactors and enhance security of supply. It hopes to have the first reactor operational by 2020, but is relying wholly on the private sector to undertake financing and development.

EDF saw ownership of British Energy as the best way forward for its ambitions in the country. British Energy owns some of the best sites for new nuclear power plant development in the UK.

“Our commitment to nuclear power is clear and nuclear new build does not depend on one single deal,” said Hutton. “British Energy still has potential sites; and sites are available from the Nuclear Decommissioning Authority.

“The level of interest in nuclear new build in the UK from EDF and from other operators remains high.”

British Energy held talks with a number of companies – Including EDF, RWE of Germany and Iberdrola of Spain – earlier this year about the plans for new nuclear capacity in the UK. EDF was the only company to submit a firm offer for the utility, however.

An alternative way forward for British Energy is to revive talks with potential partners for developing its available sites on a project-by-project basis.

EDF offered 680 pence/share for British Energy in May, but this was rejected by shareholders as being too low given the importance of the utility’s role in new nuclear build.