Ex-Progress CEO Johnson Says Duke Had ‘Buyer’s Remorse’
Bill Johnson, the man who was chief executive officer of Duke Energy Corp. (DUK) for hours after its $17.8 billion takeover of Progress Energy Inc., said he was fired after Duke had “buyer’s remorse” about the deal.
Tensions flared between top executives about costs associated with the transaction after the U.S. Federal Energy Regulatory Commission demanded more concessions, Johnson testified to the North Carolina Utility Commission in a hearing today. Duke CEO James Rogers “explored every avenue to get out of the merger,” he said.
“They had buyer’s remorse,” Johnson said. “They wanted the merger, then they didn’t want it, then they couldn’t get out of it, then they didn’t want to be stuck with me as the person who dragged them to it.”
Johnson, the former CEO of Progress, made his first public statements about the last-minute change as the state expands its investigation. North Carolina’s attorney general is also probing the CEO switch. Johnson, 58, was replaced by Rogers, who was slated to become executive chairman after the takeover by Charlotte, North Carolina-based Duke closed on July 2.
Duke looked at several ways to exit the merger agreement, signed in January 2011, Johnson said. It evaluated structural damage at Progress’s Crystal River nuclear plant in Florida as a potential “material adverse event” that would give them an excuse to back out.
It also sought to “run out the clock” on the deal by proposing the formation of a regional transmission organization, which would face state regulatory opposition, he said.
Duke would have owed Progress $675 million for terminating the takeover without good reason, according to the merger agreement. After July 8, either party could have walked away from the deal without penalty.
The breakup fee was no longer applicable after shareholders approved the merger in August 2011, according to the agreement, Tom Williams, a spokesman for Duke, said in an e-mailed statement.
“We were having to drag them every step of the way,” Johnson said. Rogers told Wall Street analysts earlier this year that Duke would be better off if the merger wasn’t completed, Johnson said.
Duke’s support for the merger is evidenced by the fact that the deal was completed, Williams told reporters at the hearing in Raleigh, North Carolina, today.
“If investor perception is that Rogers didn’t want to do the deal, that raises red flags,” Tim Winter, who helps manage $37.7 billion at Gabelli & Co., including 1.06 million Duke shares, said today in an interview. “Investors in Duke want a low risk, high quality return. You don’t want to lose sleep, and these questions may cause us to stay up a little late.”
Duke rose 5 cents to $66.12 at the close in New York. The stock has dropped 5.3 percent since Johnson’s departure was announced.
The hearing today gave Johnson the chance to respond to statements by Rogers, who told the agency on July 10 that Duke’s board lost confidence in the incoming CEO because of his “autocratic style” and his handling of Progress’s nuclear fleet.
“I am not autocratic,” Johnson said. During his meetings with Rogers, “we never talked about autocratic style, culture, Progress financials, any of those.”
Shareholders have sued Charlotte, North Carolina-based Duke’s directors for allegedly misleading them and damaging the company’s reputation.
Duke and Progress were surprised by FERC’s demands in December for further steps to prevent the combined company from manipulating power prices in parts of North Carolina and South Carolina, Johnson said. The companies in March proposed, and the commission accepted, expansion of high-voltage lines into the area.
The expense of new power lines to easing the federal agency’s competition concerns was estimated to be about $110 million, according to a March 26 statement by the two companies. That narrowed Duke’s already “thin” benefit from the takeover, Johnson said today.
Johnson said his personal relationship with Rogers frayed in December when the Duke CEO gave an interview suggesting the company paid a lower price for Progress by promising Johnson the top job.
Johnson said he remained committed to the deal and fought Duke’s attempts to back out. Progress hired outside counsel to ensure the deal was completed.
“We signed a merger agreement, we came up here and swore we were going to do it,” he said. “It was in the best interests of everybody, including the Progress customers, shareholders and employees.”
Johnson said he kept Duke informed about structural damage at Progress’s crippled Florida reactor, shut since September 2009 for refueling and repairs. Damage during the repair was discovered after the merger agreement was announced.
The “soap opera” is a distraction at a time when Rogers, 64, and Duke’s board should be focused on knitting together the companies into the largest U.S. utility owner, Paul Patterson, a New York City-based analyst with Glenrock Associates LLC, said in a July 17 phone interview. “The management team needs to get on with the business of managing,” he said.
North Carolina law allows the commission to rescind, alter or amend its June 29 order approving the merger.
“I don’t think it’s going to be unwound, that would be really unprecedented,” Lewis Hay III, executive chairman of NextEra Energy Inc. (NEE), said at a July 17 Bloomberg Government event in Washington. “But we don’t have all the facts, and we’ll just have to see how it plays out.”
Former Progress director E. Marie McKee told the commission today the board wouldn’t have considered the deal if it had known a CEO change was planned. Johnson drew high marks for his performance as Progress CEO and kept the board well informed, McKee said. There was no indication prior to July 2 that Johnson would be replaced.
“I didn’t know whether to cry or throw up,” McKee said when Duke’s lead director Ann Maynard Gray made the motion to replace him. Gray wouldn’t elaborate on the reason for the CEO switch except to say that Johnson was “not a good fit,” McKee said. All of the former Progress directors on the new Duke board voted against the change.
Another former Progress board member, James Hyler Jr., also testified today. Duke was not allowed to cross-examine Johnson or the former Progress directors and was denied due process by the commission, Burley Mitchell, outside legal counsel to Duke Energy, said in an e-mailed statement.
The backlash to the CEO switch is unlikely to cost Rogers his job, since Duke needs him to lead the integration effort, Hugh Wynne, a New York-based senior analyst with Sanford C. Bernstein & Co., said in a phone interview.
On July 2, Johnson said he donned a new tie his wife had given him for the occasion and met with senior management and Rogers.
That afternoon, Rogers told him “‘We have to go to the 4:30 board meeting, we can’t be late for your election,” Johnson said. “I’m elected CEO, handshakes, pats on the back, congratulations all around. Two hours later, I’m gone. I had no idea.”
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