Duke Cuts Deal To Buy Panenergy Agreement Enables Utility To Branch Out Nationwide
Duke Power Co. is buying natural gas distributor PanEnergy Corp. for $7.4 billion in a move designed to help the North Carolina electric utility branch out nationally.
The deal, announced Monday, will create a new, integrated power company called Duke Energy Corp. t represents the most recent of several mergers involving electric and gas pipeline companies and comes amid a spate of mergers as the utility industry moves toward deregulation.
“As we envision expanding our electric business nationally, we need a platform on which to do that,” said Richard Priory, Duke’s president and chief operating officer, who will take the top job at the combined company.
Duke Power provides electric service in a 20,000-square-mile-area in North and South Carolina, has $13.4 billion in assets and employs 17,000 people. PanEnergy, which supplies 15 percent of the natural gas consumed in the nation, has 5,000 employees and $7.6 billion in assets.
PanEnergy has a Spokane office that wholesales electricity. Director Steve Kern said sales have reached 800 megawatts per hour, an amount that exceeds the average load of Spokane.
With the merger, he said, “We’ll truly span every segment of the energy business.”
Paul Anderson, PanEnergy’s president and chief executive, said his company recognized the need to align itself with an electric partner as the gas and electric markets began moving together.
“The logic of gas and electric convergence is indisputable,” he said. “Gas and electric companies serve essentially the same customer base. The end users of products overlap as well.”
Company officials said the new Duke Energy, with annual revenue of about $10 billion, would become one of the nation’s top two or three marketers of both electricity and natural gas.
Terms of the deal call for Charlotte, N.C.-based Duke to pay 1.0444 shares of its stock for each PanEnergy share. At its closing price Friday, Duke’s offer was worth about $50 a share. That represented an 18 percent premium over PanEnergy’s closing stock price.
But Duke stock fell on the news Monday, trading down $1.75 to close at $46.12-1/2 on the New York Stock Exchange. That made the deal worth about $48.17 a share, or $7.4 billion.
PanEnergy shares were up $1.75 to close at $44.
“It’s a good price,” said Raymond Moore, a utilities analyst with the brokerage firm Dillon Read. “You can’t blame PanEnergy. I don’t think they’re doing investors any harm by being acquired by management of superb reputation. It’s probably something they could not afford to pass up.”
The companies say they hope to receive state and federal regulatory approval for the deal within a year. Shareholders of both utilities must also approve the transaction.
Deregulation, already taking place in many states, is behind the deal as it has been for many others. California, the nation’s largest market for power, will deregulate its electric industry next year and other states are expected to follow.
Like Duke and Houston-based PanEnergy, Enron Corp., the nation’s largest natural gas company, won shareholder approval this month to buy Portland General, Oregon’s largest electric utility.
The two mergers rank among about a half-dozen involving both electric and gas utilities and are prompting other combinations, said Gary Hovis, a utilities analyst with Argus Research. “A lot of these things are nothing more than a Hula-Hoop craze,” he said.