Duke Energy to Buy Cinergy For About $9 Billion in Stock

Wall Street Journal 9may2005

Duke Energy Corp. agreed to acquire Cinergy Corp. for about $9 billion in stock to form a power utility with 5.4 million retail customers.

Under the deal, each Cinergy share will be converted into 1.56 Duke shares. Cinergy shareholders will receive a premium of 13.4% based on the company's Friday closing price of $40.38, Duke said. Duke's shares ended last week at $29.36. The shares of both companies trade on the New York Stock Exchange.

James E. Rogers (left), chairman, president and chief executive officer of Cinergy and Paul M. Anderson (right), chairman and chief executive officer of Duke Energy. photo from: PRNewsFoto

Duke shareholders will own 76% of the combined group, while Cinergy shareholders will hold the remaining 24%. The combined concern, Duke Energy Corp., will have total assets valued at more than $70 billion and market capitalization of $36 billion.

The deal, announced Monday, was unanimously approved by both companies' boards. The combined company will have 3.7 million retail electric customers and 1.7 million retail gas customers in Ohio, Kentucky, Indiana, North Carolina, South Carolina and Ontario.

Paul M. Anderson, chairman and chief executive of Duke Energy, will become chairman of the combined company. James E. Rogers, currently chairman, president and chief executive officer of Cinergy, will become president and chief executive officer. The new board will be comprised initially of 10 members named by Duke Energy and five members named by Cinergy.

Duke Energy said the transaction will enhance operations at all levels of the new company, including power generation, transmission and distribution as well as electricity and natural gas marketing. The merger will add to earnings in the first full year of operations, the company said.

Duke Energy, Charlotte, N.C., expects the proposed merger with Cinergy, of Cincinnati, to generate about $400 million in annual savings in the third year after the transaction closes. That outlook excludes implementation costs. Duke anticipates savings across the combined organization's corporate activities, regulated utilities and nonregulated marketing, trading and generation businesses.

The two companies currently employ a total of 29,350 people. Duke said it expects to reduce its staff by roughly 1,500, primarily through attrition, early retirements and other severance programs.

The companies expect state and federal regulatory approvals for the merger in about a year.

"The combination of Duke Energy and Cinergy will create a rock-solid portfolio of electric and gas businesses, increasing value for our shareholders immediately and in the longer term," Mr. Anderson said in a statement. "This union is a great strategic fit and leaves us well-positioned for continued consolidation in the energy sector as both the electric and gas businesses will have the scale to stand alone."

Reading the Meter

Duke Energy Corp. agreed to acquire Cinergy Corp. for about $9 billion in stock. Here's how the two utilities measure up by the numbers.

Duke provides gas, electric and telecommunications services, and has a real-estate division. The natural-gas unit serves customers in the U.S. – northeast, southeast and Gulf Coast – as well as Canada. The electricity division serves North and South Carolina, and the telecom unit provides local, long-distance and wireless service to both of those states as well as Georgia. The real-estate operation develops commercial, residential and multifamily real estate projects in nine states – North Carolina, South Carolina, Georgia, Tennessee, Alabama, Florida, Texas, Arizona and Virginia.

Electric customers: 2.2 million Gas customers: 1.2 million

Headquarters: Charlotte, N.C. Chairman, CEO: Paul M. Anderson Employees: 21,500

2004 Net income: $1.5 billion 2004 Revenue: $22.5 billion

Merger strategy: strengthens operations at all levels including power generation, transmission and distribution; increases options for future restructuring – electric and gas businesses have stand-alone scale

Cinergy has two core operations: regulated utilities and power generation. The regulated side provides gas and electric utilities to customers in Ohio, Indiana, and Kentucky. In Indiana, it owns 7,000 megawatts of generation. Cinergy's commercial businesses have 6,300 megawatts of generating capacity.

Electric customers: 1.5 million Gas customers: 500,000

Headquarters: Cincinnati Chairman, CEO and President: James E. Rogers Employees: 7,850

2004 Net income: $400 million 2004 Revenue: $4.7 billion

Merger strategy: adds scale, geographic diversity