Staff Report
Published Jan. 10, 2011
 
Duke Energy Corp. will acquire Progress Energy Inc. in a stock purchase and debt assumption agreement valued at $26 billion, the two companies announced today.
 
The merger makes Duke the nation’s largest utility with 7.1 million electric customers in six states and a combined enterprise value of $65 billion, the Charlotte, N.C.-based utility said. Duke services territories in South Carolina, including the Upstate, as well as North Carolina, Florida, Indiana, Kentucky and Ohio.
 
Progress Energy, based in Raleigh, N.C., includes two electric utilities that serve about 3.1 million customers in Florida and the Carolinas, including the Midlands. It has about 22,000 megawatts of generation capacity and approximately $10 billion in annual revenues.
 
“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 CEO of Duke Energy. “By merging our companies, we can do that more economically for our customers, improve shareholder value and continue to grow.”
 
Duke said it has approximately 57 gigawatts of domestic generating capacity from a mix of coal, nuclear, natural gas, oil and renewable resources.
 

A ‘Natural Fit’

“This combination of two outstanding companies is a natural fit,” said Bill Johnson, chairman, president and CEO of Progress Energy. “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. 
 
Under the merger agreement, Progress Energy’s shareholders will receive 2.6125 shares of common stock of Duke Energy in exchange for each share of Progress Energy common stock. Based on Duke Energy’s closing share price on Jan. 7, 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 approximately $12.2 billion in Progress Energy net debt. The transaction price represents a 7.1% premium to the unaffected closing stock price of Progress Energy on Jan. 5, and a 3.95 premium to the closing stock price of Progress Energy on Jan. 7.
 
Following completion of the merger, officials anticipate Duke Energy shareholders will own approximately 63% of the combined company and Progress Energy shareholders will own approximately 37% on a fully diluted basis.
 
The combination is anticipated to be accretive to Duke Energy’s adjusted earnings in the first year after closing.
 
Based on Duke Energy’s current quarterly cash dividend of 24.5 cents per common share, Progress Energy shareholders would receive an approximate 3% dividend increase, the companies said.
 
Duke Energy expects to institute a reverse stock split immediately prior to closing, and, as a result, the exchange ratio will be appropriately adjusted at that time to reflect the reverse split.
 
When the merger is completed, Rogers will become executive chairman of the new organization. In this role, Rogers will advise the CEO on strategic matters, play an active role in government relations and serve as the company’s lead spokesman on energy policy.
 
Johnson will become president and CEO 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.
 
Headquarters in Charlotte

The combined company will be headquartered in Charlotte 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.
 
Completion of the merger is conditioned upon, among other things, the approval of the shareholders of both companies.
 
The companies also provide merger information to several federal and state regulatory agencies.
 
The companies are targeting a closing by the end of 2011.