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Merger of Progress and Duke coming down to the wire

Progress Energy and Duke Energy expect federal regulators to decide this week whether to approve their merger plan, which would create one of the nation's largest utilities.

The Federal Energy Regulatory Commission is under no obligation to respond to the request by Progress and Duke for a decision by Friday, but in recent days the two companies have been notifying employees that they soon expect to close the merger deal.

The merger agreement between the two utilities expires July 8, although the companies could agree to extend it. In addition to federal regulators, state utility commissions in the Carolinas also must approve the deal.

"The ball's in FERC's court, and we're waiting to hear from them," said Tom Williams, a spokesman for Duke Energy. "The longer that FERC doesn't act, the less time we have" to complete the merger by the deadline.

Craig Cano, an FERC spokesman, said the commission has not given any indication when it might make a decision on the merger. He said he could not make any inference about the commission's inaction so far.

For Progress, the deal could make or break its plans for a proposed nuclear plant in Levy County.

The added strength of the combined companies already has led some 30 lenders to promise $6 billion in credit, if the utilities complete the merger. That could help provide a source of capital for Progress' proposed $24 billion Levy County nuclear plant.

The merger also has served to bolster Progress' stock price, which closed at $56.30 Tuesday. But if the deal fails, Progress' stock could suffer.

"I'm pretty worried about (Progress') stock if they don't get this approved," said Roger Conrad, editor of the Utility Forecaster newsletter and a leading authority on utility investing.

Progress and Duke announced their merger plans in January 2011. Under the terms of the agreement, Progress shareholders will receive 2.6125 shares of Duke in exchange for each share of Progress common stock. Based on Duke's closing share price at the time of the agreement, Progress shareholders would receive a value of $46.48 per share, or $13.7 billion. Duke also will assume more than $12 billion of Progress' net debt.

It has been a struggle for the two companies to complete the deal.

FERC twice rejected the deal because of concern that the combined company would hurt competition in the Carolinas. Both utilities are based in North Carolina, Duke in Charlotte and Progress in Raleigh. Progress serves 1.6 million in Florida, including Pinellas, Pasco, Hernando and Citrus counties.

The merger would give the combined company a customer base of 7.1 million with service in six states and 57 gigawatts of power generation.

FERC has already approved another big utility merger between Illinois-based Exelon Corp. and Maryland-based Constellation Energy Group. But that merger involved utilities with less total generating capacity and fewer customers spread out over 38 states, the District of Columbia and parts of Canada.

Things have changed since Progress and Duke first announced their merger plans. For example, the severity of troubles at Progress' broken Crystal River nuclear plant came to light, as well as more delays and rising costs of the proposed Levy project, which increasingly shows signs of never getting built.

"Some of the investors are probably wondering what they got into," said Jim Warren, whose nonprofit watchdog NC WARN has questioned the merger deal. "I can't imagine taking on Progress, based on the original terms that they negotiated. So much has changed: Crystal River, Levy, the whole market."

Williams, the Duke spokesman, said both utilities have worked toward completing the merger rather than going separate ways. Early termination of the deal by Duke, he said, would cost the company $650 million. Early termination of the deal by Progress would cost that company $400 million.

If the July 8 deadline passes, Progress and Duke could simply allow the agreement to end with no financial penalty against either company or they could mutually agree to continue the approval process.

Ivan Penn can be reached at ipenn@tampabay.com or (727) 892-2332.

Merger of Progress and Duke coming down to the wire 06/05/12 [Last modified: Tuesday, June 5, 2012 9:14pm]
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