Duke Energy 2011 Annual Report Download - page 25

PART I
ITEM 1. BUSINESS.
Proposed Merger with Progress Energy, Inc.
On January 8, 2011, Duke Energy Corporation (Duke Energy)
entered into an Agreement and Plan of Merger (Merger Agreement)
among Diamond Acquisition Corporation, a North Carolina
corporation and Duke Energy’s wholly-owned subsidiary (Merger
Sub) and Progress Energy, Inc. (Progress Energy), a North Carolina
corporation engaged in the regulated utility business of generation,
transmission, distribution and sale of electricity in portions of North
Carolina, South Carolina and Florida. Upon the terms and subject to
the conditions set forth in the Merger Agreement, Merger Sub will
merge with and into Progress Energy with Progress Energy continuing
as the surviving corporation and a wholly-owned subsidiary of Duke
Energy.
Pursuant to the Merger Agreement, upon the closing of the
merger, each issued and outstanding share of Progress Energy
common stock will automatically be canceled and converted into the
right to receive 2.6125 shares of common stock of Duke Energy,
subject to appropriate adjustment for a reverse stock split of the Duke
Energy common stock as contemplated in the Merger Agreement and
except that any shares of Progress Energy common stock that are
owned by Progress Energy or Duke Energy, other than in a fiduciary
capacity, will be canceled without any consideration therefor. Each
outstanding option to acquire, and each outstanding equity award
relating to, one share of Progress Energy common stock will be
converted into an option to acquire, or an equity award relating to
2.6125 shares of Duke Energy common stock, as applicable, subject
to appropriate adjustment for the reverse stock split. Based on
Progress Energy shares outstanding at December 31, 2011, Duke
Energy would issue 771 million shares of common stock to convert
the Progress Energy common shares in the merger under the
unadjusted exchange ratio of 2.6125. The exchange ratio will be
adjusted proportionately to reflect a 1-for-3 reverse stock split with
respect to the issued and outstanding Duke Energy common stock
that Duke Energy plans to implement prior to, and conditioned on,
the completion of the merger. The resulting adjusted exchange ratio is
0.87083 of a share of Duke Energy common stock for each share of
Progress Energy common stock. Based on Progress Energy shares
outstanding at December 31, 2011, Duke Energy would issue
257 million shares of common stock, after the effect of the 1-for-3
reverse stock split, to convert the Progress Energy common shares in
the merger. The merger will be accounted for under the acquisition
method of accounting with Duke Energy treated as the acquirer, for
accounting purposes. Based on the market price of Duke Energy
common stock on December 31, 2011, the transaction would be
valued at $17 billion and would result in incremental recorded
goodwill to Duke Energy of $11 billion, according to current
estimates. Duke Energy would also assume all of Progress Energy’s
outstanding debt, which is estimated to be $15 billion based on the
approximate fair value of Progress Energy’s outstanding indebtedness
at December 31, 2011. The Merger Agreement has been
unanimously approved by both companies’ Boards of Directors.
The merger is conditioned upon, among other things, approval
by the shareholders of both companies, as well as expiration or
termination of any applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 and approval by the
Federal Energy Regulatory Commission (FERC), the Federal
Communications Commission (FCC), the Nuclear Regulatory
Commission (NRC), the North Carolina Utilities Commission (NCUC),
and the Kentucky Public Service Commission (KPSC). Duke Energy
and Progress Energy also are seeking review of the merger by the
Public Service Commission of South Carolina (PSCSC) and approval
of the joint dispatch agreement by the PSCSC. Although there are no
merger-specific regulatory approvals required in Indiana, Ohio or
Florida, the companies will continue to update the public service
commissions in those states on the merger, as applicable and as
required.
No assurances can be given as to the timing of the satisfaction
of all closing conditions or that all required approvals will be received.
For additional information on the details of this proposed
transaction including the status of regulatory approvals, see Item 7,
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations”, and Note 2 to the Consolidated Financial
Statements, “Acquisitions and Dispositions of Businesses and Sales
of Other Assets.”
Overview.
Duke Energy Corporation.
Duke Energy Corporation (collectively with its subsidiaries, Duke
Energy) is an energy company headquartered in Charlotte, North
Carolina. Its regulated utility operations serve 4 million customers
located in five states in the Southeast and Midwest United States
(U.S.), representing a population of approximately 12 million people.
Its Commercial Power and International Energy business segments
own and operate diverse power generation assets in North America
and Latin America, including a growing portfolio of renewable energy
assets in the U.S. Duke Energy operates in the U.S. primarily through
its direct and indirect wholly-owned subsidiaries, Duke Energy
Carolinas, LLC (Duke Energy Carolinas), Duke Energy Ohio, Inc.
(Duke Energy Ohio), which includes Duke Energy Kentucky, Inc.
(Duke Energy Kentucky), and Duke Energy Indiana, Inc. (Duke
Energy Indiana), as well as in Latin America through Duke Energy
International, LLC. When discussing Duke Energy’s consolidated
financial information, it necessarily includes the results of its three
separate subsidiary registrants, Duke Energy Carolinas, Duke Energy
Ohio and Duke Energy Indiana (collectively referred to as the
Subsidiary Registrants), which, along with Duke Energy, are
collectively referred to as the Duke Energy Registrants.
Duke Energy Holding Corp. (Duke Energy HC) was incorporated
in Delaware on May 3, 2005. On April 3, 2006, Duke Energy and
Cinergy Corp. (Cinergy) consummated a merger which combined the
Duke Energy and Cinergy regulated franchises, as well as deregulated
generation in the Midwestern U.S. In connection with the closing of the
merger transactions, Duke Energy HC changed its name to Duke
Energy Corporation (Duke Energy) and Old Duke Energy converted into
a limited liability company named Duke Power Company, LLC
(subsequently renamed Duke Energy Carolinas effective October 1,
2006).Old Duke Energy is the predecessor of Duke Energy for purposes
of U.S. securities regulations governing financial statement filing.
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