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DECEMBER 11, 2006
Why A Spin-Off May Spark Duke Energy  As Duke Energy (DUK
) prepares to spin off its natural gas business in January, investors are starting to see its stock as an unusually attractive energy play. The move could unlock Duke's value as an electric utility. Shares have climbed from 27 in May to 31.68 on Nov. 29. Its gas operations will be spun off into a separate public entity, 100% owned by Duke shareholders. They will receive new shares of the gas transmission business. The "narrowed management focus, more efficient use of capital, and removal of what appears to be a conglomerate discount on Duke's price will fuel expansion [for both companies]," says Daniel Ford of Lehman Brothers (LEH
), which was the adviser on the spin-off. He says investment opportunities and strong balance sheets at both Duke Energy and the gas company "should provide steady earnings growth through the end of the decade." CEO James Rogers will add the title of chairman after the spin-off. Ford says that, on a sum-of-the-parts basis, Duke is worth 21 a share, and the gas spin-off 14. Shelby Tucker of Bank of America (BAC
), which owns shares, says the move creates near- and long-term value for shareholders. He tags Duke Energy a "buy."
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.  By Gene G. Marcial
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