Sunday, January 21, 2018
Business

Backlash brews from surprise coup in Duke Energy-Progress Energy merger

Lies, deceit, outrage, greed, money and abuse of power.

That's no summer movie plot but the blockbuster backlash from the Machiavellian maneuvers that damaged Monday's acquisition of Progress Energy by Duke Energy to form the nation's biggest power company. Who could believe such a long anticipated and laboriously vetted merger of two Fortune 500 companies could degrade so rapidly into angry finger-pointing over claims of executive coups and boardroom deceptions, threats of credit agency downgrades and probes by upset regulators?

What soured this deal so quickly?

At its core is a seemingly choreographed ousting of Bill Johnson, 58, the former CEO of Progress Energy, less than an hour after he assumed his position as CEO of the newly merged Duke-Progress company. The subdued and conservative Johnson was toppled by the Duke-dominated board of directors in favor of the more ambitious Jim Rogers, Duke Energy's former CEO. Now 64, Rogers will serve under a new five-year contract as both CEO and chairman of the new Duke.

The overthrow has had more reverberations than any Fourth of July pyrotechnics.

Directors of the former Progress Energy company are crying foul in the strongest of language.

"This is the most blatant example of corporate deceit that I have witnessed during a long career on Wall Street," wrote former Progress board member John Mullin III, a former managing director of the Dillon, Read & Co. investment firm. An experienced director for several large corporations, Mullin expressed his grievances in a July 5 letter sent to the Wall Street Journal, condemning the deal as "one of the greatest corporate hijackings in U.S. business history."

No Progress directors would have voted for this deal had they known Rogers would remain CEO, Mullin stated.

"Frankly, I felt misled," Alfred Tollison Jr., another former Progress director and former CEO of the nonprofit Institute of Nuclear Power Operations, told the Charlotte Observer.

Regulators, too, are expressing alarm. In North Carolina, headquarters of both Duke and Progress Energy, the same state utilities commission that last week approved their merger is now probing whether Duke officials may have lied about their intentions, report the Raleigh and Charlotte newspapers. A public hearing may seek explanations from Duke officials.

Even the credit agency Standard & Poor's put Duke on its watch list for potential downgrade. Johnson's sudden resignation raises concerns about the stability of the new Duke management team, which includes a number of former Progress Energy executives.

Do we care?

We should because this merger debacle is only warming up. Duke will be hard pressed to perfume this stench without better explaining to a host of different players what happened. While Duke Energy may now be the official provider of electricity to west central Florida, it still must rely on the many employees of the old Progress Energy to run the utility in the Sunshine State.

There's another big reason to care. Though no one at Duke or the former Progress Energy is talking about it yet, it's common sense that Progress Energy's nuclear power missteps in Florida played a role in the abrupt dismissal of Johnson. Duke has already stated that its No. 1 priority is the Crystal River nuclear power plant north of Tampa Bay, shuttered since 2009 and broken by Progress Energy during repair attempts. The company can choose to repair it or, if that's not possible, retire it. The cost of repairing it, and replacing the power in the meantime, would run in the billions of dollars. That's a sum sufficient to catch the attention of even whopper-sized Duke.

This fumbled merger also puts a harsh spotlight on Duke Energy's culture. Does Duke do what it says (as in naming Bill Johnson CEO, as promised), or is its style to tweak the rules of the game when it serves corporate interests? It's a key question, given Duke's new standing as a far larger utility giant and its reputation for skilled political maneuvering.

There are definite losers in this palace coup gone bad. Duke's good name clearly has some mud on it just as the company begins to introduce itself to the Florida market. And, of course, Johnson's pride is hurt now that he probably holds the record for "shortest CEO tenure" in a post-merger deal.

But by serving as Duke's CEO for all of about 20 minutes (as one Progress Energy director described it), Johnson gets a going-away package that includes a $7.4 million severance and altogether could pay as much as $44.7 million, SEC filings show.

One condition for getting such a fat check is that Johnson not disparage Duke in public.

For that kind of stunning exit package, I'm guessing his ego can take a little bruising.

Robert Trigaux can be reached at [email protected]

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