Investor Confidence in Duke’s Bid for Progress Slides

Investor confidence in Duke Energy Corp.’s (DUK) $16.1 billion bid for Progress Energy Inc. (PGN) waned after U.S. regulators questioned a plan to mitigate competition concerns.

Progress shares fell $1.01 below Duke’s offer price at 1:05 p.m. today in New York after the Federal Energy Regulatory Commission yesterday rejected the companies’ proposal to sell some electricity at cost plus 10 percent. The plan didn’t resolve concerns that the combined company could manipulate prices in North and South Carolina, the commission said.

The arbitrage spread on the all-stock deal widened by 97 cents from 4 cents yesterday. Duke, based in Charlotte, North Carolina, rose less than 1 percent to $20.88 at 12:42 p.m. in New York. Progress, based in Raleigh, North Carolina, fell 1.6 percent to $53.56.

Duke had said it expected federal and state regulatory approvals in time to close the takeover by Jan. 1.

“The time line is shot,” Philip Adams, a Chicago-based analyst for Gimme Credit LLC, said today in an interview. “The deal is in regulatory trouble.” Adams rates the debt of both companies at “underperform” and doesn’t own their stock nor bonds.

The federal commission wants Duke, Progress and other utility owners in the U.S. Southeast to sell their power plants and allow interstate oversight of competitive wholesale power markets by regional transmission organizations, Adams said. Southeastern regulators want to keep utilities integrated with state-regulated power rates based cost, he said.

The commission on Sept. 30 subjected its approval of the transaction to a market-mitigation plan from the companies. Duke offered in October to sell some electricity at cost plus 10 percent in a so-called virtual divestiture.

In its order yesterday, the commission said that plan lacked sufficient oversight.

Duke’s spokesman Tom Williams had no comment on the commission’s decision today.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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