French utility EDF said yesterday it has agreed to buy nuclear power company British Energy for £12.5bn, and plans to sell a stake to Scottish Gas owner Centrica, in a deal that will pave the way for a new generation of nuclear reactors in the UK.

French utility EDF said yesterday it has agreed to buy nuclear power company British Energy for £12.5bn, and plans to sell a stake to Scottish Gas owner Centrica, in a deal that will pave the way for a new generation of nuclear reactors in the UK.

Electricité de France's bid of 774p for each ordinary share of the East Kilbride-based nuclear power plant operator amounts to an increase of 9p per share from its July bid which was rebuffed by two major shareholders in British Energy.

EDF already has the approval of the British Government and has won the support of Invesco, one of British Energy's largest shareholders. Invesco and another major shareholder, M&G, the investment arm of Prudential, had rejected EDF's previous bid as too low, forcing the French company to come up with an improved offer.

The government, which owns about 36% of British Energy, is set to make £4.5bn from selling its holding.

EDF chairman Pierre Gadonneix said the deal, which is one of the largest ever direct foreign investments in Britain, paved the way for further investment in the UK where its is already the fifth largest electricity supplier to consumers.

He added his company still had the capacity to do more deals globally. "They (capacities) are not depleted," he told a news conference in Paris.

City analysts said the deal will create a cross-channel powerhouse in nuclear energy.

EDF, which is 85% owned by the French state, is the world's largest nuclear plant operator, running all 58 of France's nuclear reactors and British Energy owns and operates eight nuclear power stations.

Two other nuclear stations are owned by the Nuclear Decommissioning Authority. They are located at Oldbury-on-Severn in Gloucestershire and Wylfa on Anglesey.

EDF, which predicted the deal would lead to cost savings of 200m (about £150m) and lift group earnings in 2009, said it had received assurances from British Energy investors it would get at least 45.16% of the utility.

"I am pleased to say that both the government and our largest shareholder, Invesco Perpetual, have provided commitments to accept the offer," said British Energy chief executive Bill Coley.

At the same time, Centrica said it was in talks with EDF to buy a 25% stake in British Energy at the same price per share as EDF, alleviating concerns that all of Britain's nuclear industry would fall into foreign hands.

It would also mean less volatile electricity prices, "which has to be good for our customers", Centrica chief executive Sam Laidlaw said.

Meanwhile, the Scottish Government in Edinburgh said EDF has given First Minister Alex Salmond assurances that it will remain committed to Scotland after its takeover of British Energy.The assurance came when Salmond had talks in June with EDF, a Scottish Government spokesman said.

British Energy's headquarters are in East Kilbride and two of its eight nuclear power stations, Hunterston and Torness, are located in Scotland.

The spokesman for Salmond said: "We welcome the commitment by EDF to East Kilbride and to Scotland. That commitment is to maintain offices in East Kilbride."

He said Salmond had met EDF chief executive Vincent de Rivaz in June to discuss the takeover. "He emphasised the Scottish Government's opposition to new nuclear stations but also pressed for an assurance by EDF about the East Kilbride facility," the spokesman stated.

Adam Ingram, the MP for East Kilbride, told The Herald he had received assurances that EDF would keep 200 staff at British Energy headquarters and would create more jobs in Scotland's nuclear industry. British Energy employs 6000 staff throughout the UK.

The Scottish CBI was more downbeat, saying it "regretted" the loss of another major firm based in Scotland.

The purchase of British Energy follows the takeover of ScottishPower by Spain's Iberdrola, Scottish & Newcastle Breweries by Dutch-based Heineken and Denmark's Carlsberg and the HBOS banking group by Lloyds TSB.

The takeover lifted the share price of both companies. In Paris trading, shares in EDF rose by 1.6 to 51.76, while in London, British Energy stock climbed by 41p to 765p. Centrica gained a half-penny to 331p.

The UK government, which has invested considerable political capital in an EDF-British Energy tie-up, welcomed the takeover.

"This deal is good value for the taxpayer and a significant step towards the construction of a new generation of nuclear stations to power the country," Prime Minister Gordon Brown said.

"Nuclear is clean, secure and affordable; its expansion is crucial for Britain's long-term energy security, as we reduce our oil dependence and move towards a low carbon future," he added. A Downing Street spokesman said the government had agreed to sell its stake for 774p a share.

Business Secretary John Hutton said the deal could improve Britain's energy mix, create jobs and offer "a wealth of opportunities for British manufacturers."

Hutton said the recommended deal would amount to "one of the largest foreign direct investments ever made in Britain."

The government said EDF had agreed to continue operating British Energy's eight existing nuclear power stations as well as invest in four new reactors.

The deal requires the approval of shareholder and regulators.

The French nuclear powerhouse has been looking to gain access to new nuclear sites in Britain, which has announced plans to invest billions to develop renewable energy sources - including nuclear.

EDF is already present in Britain through its EDF Energy subsidiary, which employs 13,000 people and handles 5.5 million customer accounts. It operates two coal-fired power stations as well as a natural gas-fueled power plant.

The French utility has said it wants to operate several new EPR nuclear reactors in Britain. They are a type of pressurised water reactor that would be built by Areva, a French firm with considerable experience in constructing nuclear power stations.

Britain's existing nuclear power stations have various decommissioning dates ranging from as early as this year - for the Oldbury reactor - to 2035.

The intention is for new reactors to be built at or close to existing or decommissioned nuclear sites, including those no longer in operation, such as at Sellafield and Bradwell in Essex.

The NDA has agreed that it will start the auction of its land soon, with EDF jointly marketing the Bradwell site, in which it had already bought a significant land interest. German utilties E.ON and RWE may bid for some of the sites.