France will invest $10 billion to acquire full control of EDF

As Europe faces an energy crisis, the French government is ready to spend 9.7 billion euros ($9.85 billion) to purchase full control of EDF (EPA:EDF) in a takeover deal that would give it unlimited control over Europe's largest nuclear power operator.

The finance ministry announced in a statement released on Tuesday that the government will pay minority shareholders of EDF 12 euros per share, a 53 percent premium over the stock's closing price on July 5, the day before the government announced its intention to nationalize the entire debt-ridden company.

Tuesday at 08:36 GMT, EDF shares, which resumed trading after a one-week suspension awaiting details on the government takeover plan, were up 15% to 11.80 euros.

EDF has been plagued with unplanned outages at its nuclear fleet, delays and cost overruns in building new reactors, and power pricing regulations imposed by the government to prevent people's electricity costs from soaring.

The conflict in Ukraine has compounded the group's predicament, forcing it to acquire electricity from the market at historically high prices and sell it at a discount to its competitors.

France has declared that nationalizing EDF will increase the security of its energy supplies at a time when Europe is rushing to find alternatives to Russian gas supply.

Rising costs have placed pressure on energy providers across Europe, and Germany intervened earlier this month to save Uniper, the continent's largest buyer of Russian gas.

France, which typically exports electricity at this time of year, is now importing from Spain, Switzerland, Germany, and the United Kingdom, and the supply constraint is projected to worsen this winter.

"Nationalization is the only viable alternative to save the company and ensure electricity generation," said Ingo Speich, head of sustainability and corporate governance at Deka Investment, which owns a small stake in EDF. This is a necessary yet uncomfortable step.

With S&P predicting that EDF's debt will exceed 100 billion euros this year, a bondholder in the group viewed the proposed takeover as a welcome demonstration of government support.

However, the bondholder underlined that a great deal more must be done to stabilize the balance sheet.

According to a banker familiar with the issue, the state, which financed the majority of a 3 billion euro capital raise for EDF in the spring, would likely be required to inject further cash in the near future.

In 2005, EDF was listed for 33 euros per share on the Paris stock exchange; hence, investors who acquired shares at that time have suffered a large loss.

Analysts noted, however, that the government only needs 90 percent ownership of EDF in order to delist it.

Citi analyst Piotr Dzieciolowski stated in a note, "The offer seems enticing and has a good chance of success."

The buyout proposal will be presented to the stock market regulator by early September. The French government plans to complete the delisting process by the end of October, according to a source from the finance ministry.

After accounting for existing debts and a premium for minority shareholders, sources told Reuters last week that the government will pay close to 10 billion euros to purchase the remaining 16 percent of EDF that it does not already own.