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Duke-Progress Merger Spread Rises: Dallas Mover

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(Corrects definition of merger spread in first and second paragraph of story published May 25.)

May 25 (Bloomberg) -- The difference between the value of Duke Energy Corp.’s all-stock offer and Progress Energy Inc.’s share price widened after the companies said federal regulators may rule as early as today on a proposal to ease competitive concerns stemming from Duke’s $17 billion acquisition.

The difference, known as the merger spread, reflects a greater expectation that the deal may not close. The gap increased 17 percent to $2.77 at the close in New York, the most since May 1. If completed, the merger will create the country’s largest U.S. power company by market value.

The merger spread has increased 60 percent since a May 22 report by a little-known analyst, Thomas Champion, said staff at the Federal Energy Regulatory Commission held reservations about the companies’ latest plan to ensure they can’t manipulate electricity prices in North and South Carolina.

The commission rejected an earlier proposal Dec. 14 and is expected to announce between today and June 8 whether the companies’ latest effort eases its concerns about the merger, Duke and Progress told employees in a memo overnight.

The companies proposed selling power to third parties during summer months when demand is greatest and spending $100 million to extend high-voltage transmission lines.

Champion, an independent electric utility regulatory analyst, said in his May 22 report that commission staff thought merger concerns could only be resolved if the companies joined a regional transmission organization, a move that North Carolina regulators oppose.

Champion didn’t return a phone call or e-mail requesting comment. His firm, T Champion Consulting LLC, is listed as a lobbyist for SunZia Southwest Transmission Project, according to a website run by the U.S. Senate’s Office of Public Records.

Wholesale Market

While the commission suggested joining a wholesale electricity market as a way to ease market-power concerns, “it was never positioned as a requirement,” said Mike Hughes, a spokesman for Raleigh, North Carolina-based Progress. “We believe the merger mitigation plan we submitted does address market concentration concerns.”

Progress said it hadn’t heard of Champion or his firm prior to the report, Hughes said. Champion isn’t included among the 21 analysts who cover Duke and 19 analysts who cover progress, according to data compiled by Bloomberg.

“We still put a relatively high probability that the merger will close,” Andrew Bischof, Chicago-based equity analyst for Morningstar Inc., said in a phone interview. He has a three-star rating for Charlotte, North Carolina-based Duke, suggesting that investors hold the shares.

The companies told employees they expected the mergers to gain remaining approvals needed from FERC and utilities regulators in North Carolina and South Carolina. “For internal planning purposes, we are continuing to target a merger close date of July 1,” according to the note overnight.

Duke rose 0.7 percent to $21.96 in New York. Progress increased 2 cents to $54.60.

To contact the reporters on this story: Julie Johnsson in Chicago at; Jim Polson in New York at

To contact the editor responsible for this story: Susan Warren at

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