Nuclear policy is back to Plan A as French dump BE

EDF, the state-controlled French powerhouse, had been assured by the British Energy board it would recommend a 765p-a-share bid but the deal was called off at minutes to 11pm.

The shareholders who derailed the deal were fingered today as the fund managers at Invesco Perpetual and The Prudential who between them speak for around 25% of the company and the biggest shareholders after the Government with its 35% stake.

It is understood that while the board, chaired by Government fixer Sir Adrian Montague, was prepared to agree to EDF's 765p offer, Perpetual and The Pru said it was vastly under value. The deal is now believed to be dead.

While official statements from both EDF and British Energy indicated that negotiations could be reopened, City insiders say EDF is highly unlikely to come back with a revised offer.

EDF opened negotiations weeks ago with an offer just shy of 700p.

When British Energy's shareholders made it plain they wanted an offer nearer 800p, the last few days saw EDF prepared to take its bid up to 765p.

While EDF knew some would be unhappy with 765p, advisers from Merrill Lynch came up with a sweetener.

That alternative offer was 700p cash plus a derivative instrument called a CVR or contingent value right.

The CVR is structured as a bet over the next 10 years based on the future profitability of British Energy based on its output and the forward price of electricity. The CVR was structured so that bulls of British Energy and the rising electricity price would make substantially more than the 65p differential with the full cash-based offer.

It is understood Perpetual and The Pru argued the terms were still not generous enough. Insiders now believe that if the deal is dead that British Energy will go back to Plan A.

That, favoured by its chief executive Bill Coley, is for British Energy to sign a number of joint ventures to build new nuclear power plants.

Tangled history for power giant

Quite how the Government ended up with a 35% shareholding in British Energy is a tangled story. The last of the Tory privatisations, it got into trouble after the collapse of electricity prices in 2001 after deregulation. Forced to step in, Trade minister Patricia Hewitt agreed to take its nuclear clean-up liabilities in return for a 65% stake. The company made a return to the stock market in early 2005 as it was relaunched at the start of the bull run in power prices.