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TheStreet Open House

5 Big Deals That May Flop in 2012

Stocks in this article: MHS ESRX VMC MLM CVS EP KMI DUK PGN JNJ IEP CLX CMC MMI GOOG OSK NAV

3. Duke Energy's $13.7 billion Acquisition of Progress Energy.

In Jan. 2011, Duke Energy (DUK - Get Report) said it will buy Progress Energy (PGN) for $13.7 billion creating a regional energy behemoth in the Carolina's, serving 7.1 million customers in Southeastern states. The deal still hasn't closed on antitrust concerns.

The value of the all stock deal has increased with Duke Energy's over 20% stock gain in 2011, but the deal is facing scrutiny that may threaten Progress's gains.

In December, the Federal Energy Regulatory Commission blocked the merger, delaying its close into 2012 on grounds that the tie-up would be harmful to energy market competition in North and South Carolina, where both companies have a significant presence.

After a Duke and Progress Energy proposed 8-year power selling agreement to mitigate concentration issues in the Carolinas was submitted in October, the FERC rejected the plan, calling it "flawed" and leaving key anticompetitive pricing threats unaddressed. However, the rejection of the proposal was not an outright veto of the merger.

Even after the FERC order, which has delayed the merger close from 2011, Duke and Progress are committed to the merger. "The companies are planning to submit a revised mitigation proposal as soon as the analysis of the commission's order is complete," said Duke and Progress in response to the FERC order. In a recent filing, Progress Chief Executive Bill Johnson said he expects the merger to close in June, pending regulatory approvals.

The companies will now need to resubmit a divestiture plan and have it accepted ahead of a July 8 termination date. As late as October, company officials had said the merger would close in 2011.

Previous to the December regulatory stoppage, the merger had received approvals from the U.S. Department of Justice, the U.S. Nuclear Regulatory Commission and the Federal Communications Commission, among other approvals, which also include the shareholders of both companies.

Divestitures still are a key to utilities mergers, which can create regional powerhouses. In December, the DoJ and other regulators approved the merger between Constellation Energy (CEG) and Exelon (EXC) that would create a mid-Atlantic energy titan. That deal will now looks more likely to close in 2012, pending the divestiture of three power plants.

For more on utilitity stocks, see TheStreet's portfolio of the highest yielding utility stocks.

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