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A merger between British Energy and French group EDF could be announced as early as tomorrow, newspapers have speculated.

EDF was said to be in talks with nuclear power operator British Energy in a meeting in Paris last night, hammering out the details of a £12.4 billion takeover offer.

British Energy had turned down a previous offer from the group as too low but the new offer is thought to be acceptable to institutional investors Invesco and M&G, who rejected the earlier bid.

The government is said to be backing EDF to lead a new generation of nuclear power stations in the UK.

As part of its energy strategy, the government wants to sell its 35 per cent stake in the business to a company that would invest in a new generation of nuclear power stations.

EDF has the experience in building and running nuclear plants with 58 reactors in 19 sites in France.

Although British Gas-owner Centrica has also expressed interest in buying British Energy, the company has yet to table an offer.

However, the Times has reported EDF would immediately hand back two key nuclear sites to the government for auction in order to create competition within the industry.