Duke Energy reportedly a takeover target by a Florida utility company

Duke Energy, North Carolina’s dominant utility provider, reportedly was recently approached by Florida-based NextEra Energy about a potential acquisition, according to a new report by The Wall Street Journal.

While Duke apparently turned back the idea, NextEra is still interested in a deal, the Journal reported. Bloomberg also reported the NextEra takeover bid.

Duke Energy declined to comment on the report, saying it doesn’t comment on rumors or speculation. NextEra, whose operations are heavily concentrated in Florida, has not yet responded to a request for comment.

Like NextEra, Charlotte-based Duke also serves customers in Florida. In total, Duke provides electricity for more than 7.7 million customers in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. It also provides natural gas to more than 1.5 million customers.

A potential deal between NextEra and Duke would be enormous. NextEra has a market value of around $139 billion, and Duke has a market value of $61 billion, though its stock price has declined by 14% this year, according to The Wall Street Journal. News of the potential takeover bid caused Duke’s shares to rise on the stock market.

A 2019 report by S&P Global said NextEra and Duke were the two most valuable utility companies in the country.

A potential deal would also face a long road to getting government permission. It would need several federal regulatory approvals, including from the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission, as well as several state approvals, including North Carolina’s.

The deal also could potentially mean the loss of an important headquarters in North Carolina. Duke, which has been based in North Carolina for more than 90 years, has a large presence in uptown Charlotte, with around 6,000 corporate employees at the Duke Energy Center. It also has a large presence in downtown Raleigh, with hundreds of employees.

At a press conference on Wednesday, Gov. Roy Cooper said he hadn’t read the Wall Street Journal report, but had heard about it. The state and Duke Energy work closely together on many matters, including infrastructure projects and emergency responses to natural disasters.

“What I will say is that North Carolina is proud to be home of Duke Energy, which is a Fortune 50 company,” Cooper said. “Duke has been an important partner in our economic development ... and I am also pleased to Duke’s response t my clean energy plan ... and our commitment to green renewable energy. Duke’s commitment to clean energy will set an important example and will move our state forward to a stronger clean energy future.”

Cooper’s Executive Order 80 calls for North Carolina to reduce its greenhouse gas emissions to 40% below 2005 levels as well as many other green energy targets.

John Buley, a professor of the practice of finance at Duke University’s Fuqua School of Business, said that while he thinks a deal is unlikely, there is some logic to a merger of NextEra and Duke Energy.

“There are significant cost synergies to a potential merger of two firms of the size of Duke and NextEra,” Buley said in an email. “For example, there is overlap in the Florida market where cost savings could be found rather quickly.”

But without “enthusiastic support” by Duke’s board, it isn’t likely a merger of this size and scale will happen.

Because of its role as an energy provider, the deal will also likely be watched closely by environmental groups. NextEra has made a name for itself in recent years by becoming one of the largest operators of wind and solar farms in the world.

Gudrun Thompson, senior attorney at the Southern Environmental Law Center, said her organization will be keeping a close eye on a potential merger and what it would mean for customers and the environment.

“Duke Energy has a mixed track record on those things, but has made some progress in recent years,” Thompson said.

Duke says it has invested more than $4 billion in wind and solar projects since 2007.

“NextEra is a mixed bag as well,” Thompson added. “NextEra’s commercial wing is a renewable energy powerhouse, but NextEra’s regulated utilities in Florida lag way behind Duke in delivering energy efficiency savings that help customers lower their bills. We will be watching the situation closely to see how it develops.”

Buley said NextEra’s strong history in renewable energy could also help in its chase of Duke. Investors, in recent years, have become more interested in companies that have good environmental and social practices.

“Surprisingly, since COVID, (environmental and social) factors have become more, not less, important to investors,” Buley said. “NextEra is positioned to succeed in this field irrespective of whether a transaction between Duke and NextEra ever occurs.”

Usually it is Duke that is on the hunt for deals. It has been a major player in energy acquisitions in recent years. It bought Piedmont Natural Gas in 2016 for $5 billion and Progress Energy in 2012 for $17.8 billion.

Jim Warren, the executive director of NC WARN, an advocacy group that frequently criticizes Duke’s environmental record, said the potential approach by NextEra shows Duke Energy has been weakened in recent years.

“(Duke) is juggling numerous major problems over the last two or three years,” he said in an interview, including “several that have hurt them really badly and several that are far from resolved.”

In July, Duke Energy, along with Virginia-based Dominion Energy, canceled the Atlantic Coast Pipeline that would have traveled 600 miles, including a significant stretch through North Carolina. Duke and Dominion had already spent $3.6 billion on the project before it was canceled, according to Argus Media, a trade publication for the natural gas industry.

In a settlement with the state of North Carolina earlier this year, Duke also agreed to the nation’s largest ever excavation of coal ash. The excavation of the coal ash, which stems from a 2014 spill on the Dan River, could cost billions of dollars, The Charlotte Observer reported.

In South Carolina, Duke spent $558 million on a new nuclear plant that it later abandoned, the Spartanburg Herald-Journal reported. It also is in a bidding war for the South Carolina utility Santee Cooper.

The North Carolina legislature also dropped a controversial proposal in 2019 that would have changed how Duke got the state to approve rate increases. Rather than having to justify rate increases every year, that bill would have allowed the state Utilities Commission to set electricity rates for up to three years.

Warren believes that those losses has made “the investment community nervous.”

This story was originally published September 30, 2020 at 3:06 PM with the headline "Duke Energy reportedly a takeover target by a Florida utility company."