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The Observer: Centrica bidders aim to thwart Gazprom

Richard Wachman, City editor
Sunday June 17, 2007

Bid speculation is swirling round Centrica, owner of British Gas, which is being targeted by UK and foreign energy giants, according to banking sources.

Groups such as Britain’s BG, Royal Dutch Shell, Gaz de France and Norsk Hydro of Norway are said to be considering whether to make a move on Centrica to thwart a possible bid from Russia’s state-owned Gazprom.

One proposal that involves a merger between BG and Centrica – which were part of the same company before 1997 – is believed to be favoured by British politicians nervous about Centrica falling into the hands of Gazprom, which has close links to the Kremlin. Recently, Tony Blair warned that worsening UK-Russian relations could damage economic ties between the two countries.

For a gas supplier, a tie-up with Centrica offers a ready-made distribution network to nearly 16 million customers, while Centrica needs to secure access to cheap supplies because reserves from its Morecambe Bay field are running out.

One analyst says: ‘If Centrica becomes an integrated energy group it would no longer be as vulnerable, as it is today, to rises in wholesale gas prices.’

Rumours that Gazprom is about to pounce were given credence last week following remarks from the Russian company’s deputy chairman Alexander Medvedev. He said that Gazprom was close to a deal that would increase its presence in Britain, although he refused to identify the company.

Sam Laidlaw, Centrica’s chief executive has refused to rule out a merger with a rival, but his strategy has been to agree supply deals with a number of companies around the world. Some observers say that Gazprom may stop short of trying to acquire Centrica and seek to buy a stake in return for a supply agreement.

BG’s attempts to run gas from the eastern Mediterranean to Israel have been derailed by the breakdown of order in Gaza. The company had recently indicated it was making progress in negotiations but on Friday a spokesman for the new Palestinian finance Minister Salam Fayyad said talks had foundered.

http://observer.guardian.co.uk/business/story/0,,2104549,00.html

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