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Progress, Duke Energy merging

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Merger will create nation’s largest utility

By Chris Van Ormer

Duke Energy and Progress Energy announced Monday that both companies’ boards of directors have unanimously approved a definitive merger agreement to combine the two companies in a stock-for-stock transaction, a $13.7 billion stock-based deal. 

The combined company, to be called Duke Energy, will be the country’s largest utility.

The merger’s advantages include:

* About $65 billion in enterprise value and $37 billion in market capitalization. 

* The country’s largest regulated customer base, providing service to approximately 7.1 million electric customers in six regulated service territories: North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio.

* Approximately 57 gigawatts of domestic generating capacity from a diversified mix of coal, nuclear, natural gas, oil and renewable resources.

* The largest regulated nuclear fleet in the country.

“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,” said Jim Rogers, chairman, president and chief executive officer of Duke Energy. “By merging our companies, we can do that more economically for our customers, improve shareholder value and continue to grow.”

Bill Johnson, chairman, president and chief executive officer of Progress Energy, called the merger a natural fit.

“It makes clear strategic sense and creates exceptional value for our shareholders,” Johnson said. “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.” 

Citrus County government and business leaders reacted with cautious optimism to news of the merger. Through its power plant in Crystal River, Progress Energy has been the county’s largest taxpayer and offered a great number of jobs in the county. The single-unit, 860-megawatt nuclear plant is on a site that includes four coal-fired units that generate 2.311 gigawatts.

Andy Houston, city manager of Crystal River, said, “The companies told us there could be some loss of jobs, but those would be in administrative support, not local operations. Hopefully, it will not hurt us in any significant way.”

According to a statement from the two companies, job reductions at both companies are anticipated, although they have no predetermined number or goal. They have pledged to look for savings in other areas first, such as fuel efficiencies. Positions would not be eliminated until the merger is approved, which is expected to take about a year. The reductions would be phased over several years. The reductions would come through integrating operations.

Josh Wooten, president and chief executive officer of the Citrus County Chamber of Commerce, also expressed concern for jobs, but welcomed the opportunity for business expansion.

“This merger will bring efficiency on the corporate level.” Wooten said. “We’re cautiously optimistic that it will not change the workforce in Citrus County regarding boots on the ground. This is the largest player in the United States. We should see some potential benefits as well. It could make the project in Levy County more viable for them. Duke doesn’t have its toe in the water in Florida, so it is coming in as a major player. The early sign is that it will not negatively affect the workforce. From the sheer size of the company, they will have the wherewithal for expansion. We look forward to meeting the leadership team and doing what we can to help them.”

Dennis Damato, chairman of the Citrus county Board of County commissioners, said the “big player” aspect should work to the county’s advantage.

“It could be viewed as good for the people of this area,” Damato said. “Having a larger company would help the Levy County project. As the largest utility in the country, it will bring things to this area we don’t have. As a large company, they can spread the base over a regional area, and spread the customer costs for projects over a bigger customer base.”

Geoffrey Greene, Citrus County property appraiser, said the merger would bring no immediate changes to his office.

“We will see no changes on the 2011 tax roll,” Greene said. “It will take a year for any changes, and until our consultant meets with their tangible tax department, we won’t know if there is any change. We value them as the largest taxpayer in the county and we value them based on their tangible tax returns for their assets. We have a very good relationship with them.”

Under the merger agreement, Progress Energy’s shareholders will receive 2.6125 shares of common stock of Duke Energy (NYSE: DUK) in exchange for each share of Progress Energy (NYSE: PGN) common stock. Based on Duke Energy’s closing share price on Jan. 7, 2011, Progress Energy shareholders would receive a value of $46.48 per share, or $13.7 billion in total equity value.

Duke Energy also will assume about $12.2 billion in Progress Energy net debt. The transaction price represents a 7.1 percent premium to the unaffected closing stock price of Progress Energy on Jan. 5, 2011, and a 3.9 percent premium to the closing stock price of Progress Energy on Jan. 7, 2011.

The transaction price also represents a 6.6 percent premium to the average closing stock price of Progress Energy over the last 20 trading days ending Jan. 5, 2011, and a 6.4 percent premium over the last 20 trading days ending Jan. 7, 2011.

Following completion of the merger, officials anticipate Duke Energy shareholders will own about 63 percent of the combined company and Progress Energy shareholders will own about 37 percent on a fully diluted basis.

When the merger is completed, Rogers will become executive chairman of the new organization. In this role, he 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.

Johnson will become president and chief executive officer of the new company.

Both Rogers and Johnson will serve on the board of directors of the combined company, which will be composed of 18 members, with 11 designated by Duke Energy’s board of directors and seven designated by Progress Energy’s board of directors. 

The combined company will be headquartered in Charlotte, N.C, and will maintain substantial operations in Raleigh.

Until the merger has received all necessary approvals and has closed, the companies will continue to operate as separate entities.

Customers will see no change in their current electric utility companies including: Progress Energy Carolinas and Progress Energy Florida and Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Ohio, Duke Energy Kentucky, Commercial Power, Duke Energy Generation Services and Duke Energy International.

 

Reporter Chris Van Ormer can be reached at 594-2916 or cvanormer@chronicleonline.com.