The UK’s largest power station, the 4 GW coal-fired Drax in Selby, Yorkshire, is expected to move forward with its 15 December flotation after an improved offer from the BCHP consortium fell short of expectations and was rejected by the board.
Drax which recently ended talks with two other consortia – Apollo, Texas Pacific Group and TowerBrook, and International Power and Mitsui & Co – is still in negotiation with BCHP, which includes US utility Constellation Energy, hedge fund Perry Capital, Blackstone Group and Hellman & Friedman, in the hopes that a further improved offer will appear.
The BCHP consortium is understood to have increased its original offer for the station after an earlier offer of around £1.9bn was rejected, instead offering a cash price of 377% of par value for the Linked Securities, equating to an enterprise value of approximately £2.23 billion ($3.8 billion). However, Drax issued a statement saying: “The proposal from the BCHP consortium is below the mid-market price of 399% for the Linked Securities as at close of trading on 9 November.” The cash price was offered on the basis that Drax shareholders commit to take up at least 20% of the ordinary shares in the BCHP Consortium bid vehicle.
Drax is owned by a group of bondholders after its former owner, US utility AES Corp , withdrew financial support following a slump in UK power prices. However, a surge in power and gas prices has boosted the station’s fortunes and holding out for an improved offer may prove to be an astute move.
Drax Group has just posted its latest half year results showing revenues from generation during the nine months ended 30 September 2005 were £512.0 million ($870 million), compared to £364.8 million ($620 million) during the corresponding period in 2004, an increase of £147.2 million ($250 million) or more than 40.4%.
This increase was mainly due to increases in average electricity prices over the period.