Duke Energy Corp. is nearing an agreement to buy Progress Energy Inc. to form the largest U.S. utility, said three people with knowledge of the matter.
Duke is weighing a stock merger valuing Raleigh, North Carolina-based Progress at slightly more than its Friday market value of $13.1 billion, and may be prepared to announce a deal by tomorrow, said one of the people, who spoke on condition of anonymity because the talks are private. Progress’s market capitalization is based on the last closing price of $44.72 on the New York Stock Exchange.
Duke Chief Executive Officer James Rogers, 63, is seeking to expand his regulated utility business after losing to PPL Corp. in a bidding contest last year for E.ON AG’s Kentucky electricity distributors. A deal for Progress would add units that operate near his service territories in North Carolina and South Carolina, as well as an electric distribution unit in Florida. Progress also owns more than 22,000 megawatts of power generation capacity, according to its website.
The talks were reported earlier by Dealreporter and the Financial Times. Tom Williams, a spokesman for Charlotte, North Carolina-based Duke, declined to comment. Mike Hughes, a spokesman for Progress Energy, also declined to comment.
Acquisitions in the U.S. power industry have picked up as companies seek to add customers to counter falling prices. Utilities expanding through mergers can also spread the cost of complying with environmental regulations or building new power plants across more customers. Regulators generally allow utilities to bill consumers for reimbursement of those costs.
Duke supplies energy to about 4 million utility customers in North Carolina, South Carolina, Indiana, Ohio and Kentucky, according to its website. It has about 35,000 megawatts of electric generation capacity. Progress has about 3.1 million utility customers, according to its website.
Duke’s shares rose 5 cents to $17.79 on Friday, giving it a market value of about $23.6 billion and an enterprise value, including net debt, of $39.4 billion. Combining with Progress would create a company with an enterprise value of about $64 billion, according to data compiled by Bloomberg, eclipsing Atlanta-based Southern Co.
PPL bought the E.ON utilities for $6.7 billion last year. PPL outbid Duke in an auction for the unit, people with knowledge of the matter said at the time.
The average market premium for a U.S. utility since 2009 was about 23 percent, according to data compiled by Bloomberg. The median multiple paid to the last 12 months’ earnings before interest, taxes, depreciation and amortization was about 8.6, the data show.
Progress traded at a multiple of 8.5 times Ebitda on Friday. The shares reached a high of $52.55 in May 2007.
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