Duke Energy Corp
The U.S. power industry has seen a resurgence of deal activity in the past year -- despite high regulatory barriers -- as utility companies consolidate to cut costs and pool funds for investing in new projects, such as nuclear power plants.
Duke, which has a market value of $23.6 billion, wants to buy Progress in a stock-based deal priced at a low premium to its $13.1 billion market value, one source said. The companies hope to announce a deal on Monday, according to another source, but the talks could still be delayed or even derailed.
U.S. state regulators often oppose large mergers on fears that prices could rise for consumers, or services could decline.
Currently the third-largest U.S. utility, Duke would leap to the top spot in both market value and generating capacity if the deal is completed, based on the companies' current totals.
The fact that they'll be so dominant would create some regulatory problems in my opinion, said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. The regulatory hurdle is probably going to be daunting, he said.
Both Duke and Progress are based in North Carolina and serve clients in North and South Carolina. Duke serves some markets in the Midwestern United States and Progress also supplies customers in Florida.
Duke would be adding Progress' more than 22,000 megawatts of generation capacity to its fleet of power plants, which have a capacity of 35,000 megawatts. One megawatt can power an average of 1,000 U.S. homes.
Florida's NextEra Energy
Gordon Howald, an analyst with East Shore Partners, said diversified utilities like Duke are searching for acquisitions to fuel cash flow at a time when power prices are expected to be low over the next few years.
This deal would help them ride through a very difficult market for the next couple of years, he said of Duke.
Progress has shed non-regulated businesses in recent years. The acquisition would add stable cash flow for Duke, which has a portfolio of both regulated and unregulated power assets.
Power deals in the past year include FirstEnergy's
Howald said he would expect other large diversified utilities like Exelon Corp
Diversified utilities have been relying on unregulated operations -- where they can sell power at market rates -- for growth. But in a weak power price environment, they are going to have to find cash flow somewhere else, he said.
State regulators have sought drastic concessions from companies planning to merge, such as in the form of rate reductions. In a previous wave of consolidation during the middle of the last decade, planned mergers of FPL Group
Even deals that do succeed can drag on for very long periods before closing. FirstEnergy has yet to complete its deal for Allegheny, which was agreed to eleven months ago.
Duke last year lost out on a bid for the U.S. assets of German utility E.ON
Progress shares closed at $44.72 on Friday, and have risen more than 4 percent since Thursday morning, when rumors of the deal first surfaced. The company also saw a spike in options activity on Thursday on January calls between $42 and $45.
Duke and Progress were not immediately available for a comment.
(Reporting by Michael Erman; Editing by Maureen Bavdek and Tim Dobbyn)