By Triangle Business Journal

Duke Energy has reached a deal to buy Progress Energy in a $26 billion transaction that would create the nation's largest utility company and cost the Triangle its largest publicly traded concern.

The acquisition, announced Monday morning, is an all-stock transaction in which Progress Energy (NYSE:PGN) shareholders will receive 2.6125 shares of common stock of Duke Energy (NYSE: DUK) stock in exchange for each Progress share. The deal values Progress Energy shares at $46.48 each, or $13.7 billion.

Duke also would assume about $12.2 billion in debt, pushing the total value of the deal to $26 billion.

Duke Energy CEO Jim Rogers is to be executive chairman of the combined company, while Progress Energy CEO Bill Johnson will serve as president and CEO.

The merger, if approved by regulatory officials, would increase Dukeâ¿¿s customer base by about 75 percent and transform the Triangle into a market with one major utility. Charlotte-based Duke currently serves Durham and Chapel Hill, while Raleigh-based Progress supplies Raleigh and Cary.

Perhaps of more importance to the Triangle business community, the deal would cost the area the headquarters of the only company in the market with a market cap exceeding $10 billion.

A Duke (NYSE: DUK) purchase of Progress also would greatly expand Duke's footprint in the Carolinas and add Florida as the sixth state in Duke's utility franchise.

Among the main benefits to Duke in the deal is finding a successor to Rogers, who is 63 years old and faces retirement in two years.

One of the most likely candidates, Jim Turner, resigned last month over questionable emails he sent to regulators that were uncovered in an ethics scandal in Indiana. The emails revealed no direct evidence of undue influence or criminal wrongdoing. But they raised questions about overly friendly relationships between the regulators and the company.

Progress CEO Johnson is 56 years old and has been running the Raleigh comapny for a little more than three years.

Rogers has been involved in major acquisitions before, most recently in 2005 with Duke Energy's $9 billion acquisition of Cinergy Corp. In the past, he has always been the chief executive of the acquired company and became CEO of the merged business.

The Public Staff of the N.C. Utilities Commission estimates the two companies produce about 83 percent of the power sold in North Carolina.

The only other significant power producer in North Carolina is Dominion Resources, which serves a relatively small number of customers in northeastern North Carolina.

Such market concentration could be an issue in regulatory approval. But it is in many ways less of an issue for utilities than for other businesses. In the Carolinas and Florida, utilities are regulated monopolies within their service area, and so do not compete with each other.

And in the Carolinas, the fact that state utility regulators know both companies well and have good relations with them, could make the merger process easier.

It could be more of an issue for the Federal Energy Regulatory Commission and either the U.S. Justice Department or Federal Trade Commission, whichever of the two undertake the anti-trust review of a proposed deal.

The two companies can compete for wholesale customers â¿¿ mostly municipalities with their own utilities and membership coops. So questions could be raised in the Carolinas market on those grounds.

But many states are dominated by a single utility. Dominion is really the only significant power producer in Virginia. The massive Southern Co. is essentially the power company for Georgia, Alabama and Mississippi.

Copyright 2011 American City Business Journals

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