Duke and Progress Energy Plan Merger to form the Largest Utility in the U.S.

Duke Energy and Progress Energy announced this morning a merger that will base the combined N.C. power companies in Charlotte and make it the nation’s biggest electric utility with 7.1 million customers.

In a “FAQ” posting on Duke’s website, the company said it anticipates there will be job reductions at both companies as the merger progresses. The company said there is no “predetermined number or goal.”

Duke doesn’t expect positions to be eliminated until the merger is approved, which is expected to take about a year. The reductions will be phased in over several years. The company will look to reduce layoffs through attrition, retirements and the management of open positions, Duke said.

Charlotte-based Duke’s all-stock purchase of the smaller utility would leave Progress with a significant presence in its Raleigh base while accelerating Charlotte’s efforts to build an energy hub in the region.

“Our industry is entering a building phase where we must invest in an array of new technologies to reduce our environmental footprints and become more efficient,” Jim Rogers, Duke’s chairman and chief executive, said in a statement. “By merging our companies, we can do that more economically for our customers, improve shareholder value and continue to grow.

Rogers, 63, who has become a prominent voice for the U.S. power industry, would become executive chairman of the new company and Bill Johnson, 57, chairman and CEO of Progress, would be president and CEO.

“This combination of two outstanding companies is a natural fit,” Johnson said in a statement. “It makes clear strategic sense and creates exceptional value for our shareholders. Together, we can leverage our best practices to achieve even higher levels of safety, operational excellence and customer satisfaction, and save money for customers by combining our fuel purchasing power and the dispatch of our generating plants.

“This merger also provides predictable earnings and cash flows to support our dividend payments to shareholders,” Johnson added. The companies said Rogers will advise the CEO on strategic matters, play an active role in government relations and serve as the company’s lead spokesperson on energy policy.

Under the merger agreement, Progress shareolders would receive 2.6125 shares of Duke common stock. Based on Duke’s closing share price Friday, Progress shareholders would receive a value of $46.48 per share, or $13.7 billion in total equity value. The price is about a 4 percent premium to Friday’s close.

Duke Energy also will assume approximately $12.2 billion in Progress Energy net debt.

After the merger, which needs regulatory and shareholder approval, officials said they anticipate Duke shareholders will own about 63 percent of the company; Progress, about 37 percent. The merged firm would be called Duke Energy.

Rogers and Johnson will serve on the board of directors of the combined company, which will have 18 members, with 11 from Duke and seven from Progress.

The combined company would serve territories stretching from Ohio and Indiana to Florida.

Job cuts would be likely as the utilities eliminate jobs with duplicate functions. Duke trimmed about 1,500 jobs when it merged with Cincinnati-based Cinergy in 2006. Last year Duke announced that about 900 employees had agreed to take buyouts as part of cost-cutting moves.

Duke, formed in 1904, has 18,500 workers, including about 7,600 in North Carolina.

Raleigh would lose a Fortune 500 corporate headquarters, and potentially hundreds of employees; Charlotte would get a boost in prestige as the state’s business capital. The acquisition would spell the end of Progress Energy’s 102-year run as an independent company.

The deal would further expand Duke’s business footprint, which already extends from Argentina to New England and ranges from nuclear power plants to wind farms. The new company would sell electricity in six states, including the Carolinas, Florida and in the Midwest.

“It’s a huge deal,” said Dukes Scott, executive director of the S.C. Office of Regulatory Staff, a state consumer advocate, said before the announcement. “The size – it’ll be a huge company.”

Merging neighboring service areas and power generating facilities will result in lower costs, and officials expect the deal to produce fuel savings of $600 million to $800 million within five years after the deal closes, the person familiar with the situation said.

For electricity customers in North Carolina and in other states, the agreement would initially bring rate cuts as a condition of regulatory approval. A typical Progress household pays $102 a month for electricity; it’s about $89 a month for a Duke customer.

Federal and state regulators would seek assurances that Duke’s growing market dominance does not result in anticompetitive practices that drive up power costs for Duke’s wholesale customers, especially neighboring power companies and municipal governments.

The electric industry is in the midst of a wave of consolidations, with eight mergers and acquisitions announced or completed last year. Progress has been the subject of takeover speculation for years. Several years ago it was nearly acquired by Atlanta-based Southern Co., but those talks broke off at the 11th hour over the purchase price, control of board seats and other issues.
Source: Charlotte Observer

 

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