Duke Energy Acquires Progress Energy

Duke Energy Corporation (DUK) announced that it has acquired Progress Energy Inc., effective July 2, 2012. North Carolina-based Progress Energy was a pure-play electricity utility. The company engaged in regulated electricity operations in the southeastern U.S.

The new company would be known as Duke Energy with headquarters in Charlotte, and substantial operations in Raleigh, North Carolina. Duke Energy would trade on the New York Stock Exchange under the symbol “DUK”. Pursuant to the merger deal, Progress Energy has become a wholly owned direct unit of Duke Energy.

When the merger was announced on January 10, 2011, the transaction value totaled $26 billion, including Progress Energy's debt. Currently based on Duke Energy's share price and including Progress Energy's debt, the transaction is valued at about $32 billion. The transaction makes Duke Energy the largest U.S. utility and increases its ability to build new power plants to meet future greenhouse-gas emissions limits. Earlier, Chicago-based Exelon Corporation (EXC) was the largest U.S. utility.

In addition, Duke Energy announced that the newly constituted board has named Mr. Jim Rogers as president and chief executive of the combined company. Also, Rogers would maintain his responsibilities as chairman of the company's board. Mr. Bill Johnson has resigned as president and chief executive of the combined company.

On a standalone basis, Duke Energy had an adjusted earnings per share guidance range of $1.40 – $1.45 for 2012. Under the terms of the merger agreement, each share of Progress Energy common stock has been converted into the right to receive 0.87083 shares of Duke Energy common stock. Due to the effect of the 1-for-3 reverse stock split, which was completed related to this merger transaction, this guidance range is the equivalent of $4.20 – $4.35 per share. The combined company continues to target 2012 adjusted earnings per share range of $4.20 – $4.35. The reverse stock split is designed to reduce the number of outstanding Duke Energy shares.

The new entity has nearly $49 billion in market capitalization, total assets of more than $100 billion, and 7.1 million electric customers in the Carolinas, Florida, Indiana, Kentucky and Ohio. The regulated utilities would include a higher proportion of Duke Energy's post-merger business mix.

Duke Energy's major commercial operations include Duke Energy International, which operates power plants in Central and South America; Duke Energy Renewables, which develops and owns wind and solar projects in the U.S.; and Duke Energy's Midwest generation and Duke Energy Retail, which generate, market and sell electricity in the Midwest.

The merger is expected to keep the company’s long-term goal of 4% 6% earnings growth in good stead.

Looking ahead, our bullish outlook for the company is supported by higher rates, its strong balance sheet, ongoing capital expansion projects and an above-average dividend yield for the industry.

Duke Energy, a Zacks #2 Rank ('Buy') stock, is one of the largest electric power holding companies in the United States. We have a long-term Neutral recommendation on the Duke Energy stock.

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