By Geoffrey Smith
Investing.com -- Shares in Electricite de France leaped on Tuesday after the French government said it will pay just under $10 billion to buy out minority shareholders in Europe's largest power generator.
By 04:30 AM ET (0830 GMT), EDF (EPA:EDF) stock was up 15% at €11.79, a fraction below the €12 per share offer announced by the Finance Ministry earlier.
EDF stock has languished this year as problems have mounted with its nuclear reactors, forcing it into repeated downward revisions of its output this year. Those problems have been a major factor in Europe's ongoing energy crisis, limiting the extent to which EDF's output could replace that from gas-fired power generators as Russia throttles supplies of fuel to Europe.
The announcement signals the end of an 18-year experiment with part-private ownership of EDF, which for decades embodied the French approach of government 'dirigisme' in the decades after World War 2. It's unlikely to be the last major energy nationalization in Europe due to the current crisis. It has been clear already for some years that the company would be unable to finance the development of a new generation of reactors without violating EU rules on state aid. EDF wants to build six so-called EPR 2 reactors by 2050.
Germany's largest gas importer Uniper (ETR:UN01) is already on the verge of insolvency - according to one of its board members - after running through all its cash reserves and debt facilities in trying to cover a shortfall of Russian gas. Under current German law, the government will not allow it to pass on immediately the extra costs of the gas it is having to source from the open market.
"This action is set in the context of a climate emergency, in which the geopolitical situation is demanding tough decisions to ensure the energy independence and sovereignty of France," the Ministry said in a statement.
The offer is more than 50% above the low that EDF stock fell to earlier this year as the extent of this year's production shortfall became apparent, and is at the higher end of the stock's trading range over the last six years. Holders of the company’s convertible debt have likewise escaped the worst-case scenario: the government has offered them €15.64 for convertible bonds that were sold at a price of €11.70 in September 2020.