Duke Energy Corp. (DUK:US) said Bill Johnson won’t take over as chief executive officer as planned after its $17.8 billion takeover of Progress Energy Inc. (PGN:US) Instead, James Rogers will continue as chairman and CEO of the combined companies.
Johnson, who was Progress’s CEO, resigned after the deal closed yesterday, the Charlotte, North Carolina-based utility owner said in a statement today.
Duke announced the Progress takeover in January 2011 and said that Rogers, 64, would become executive chairman of the company with Johnson serving as president and CEO. That plan was scrapped under a “mutual agreement” between Johnson and the company. Duke declined to comment further on the change.
“There’s no question that social issues play a huge role in how these mergers unfold and this latest turn of events simply highlights just how difficult they are to predict,” said Paul Patterson, a New York-based utilities analyst with Glenrock Associates LLC.
Patterson asked Rogers during a January 2011 conference call after the Progress purchase was announced how he, as executive chairman, would resolve disputes with CEO Johnson.
“Basically, Paul, we’re going to arm wrestle and you know how big Bill is and you know the outcome of that,” Rogers replied. “I would basically say that Bill is going to be CEO and he is going to be making the calls.”
Johnson, 58, has been the chairman and CEO of Raleigh, North Carolina-based Progress since 2007. Duke shares fell 1.7 percent to $68.69 in New York. The takeover received its final regulatory approval yesterday.
“We saw this merger as a succession plan for Duke,” Angie Storozynski, a New York-based analyst for Macquarie Capital USA Inc., said today in an interview. “Now Rogers is back in charge.”
Duke’s credit rating may be cut from A-, the fourth-lowest investment grade, because of the “abrupt change in executive leadership,” Standard & Poor’s Ratings Services said today in a statement.
The reconstituted board, which has 11 Duke members and seven from Progress, yesterday asked Rogers to remain as president and CEO, he said today in a telephone interview. He didn’t participate in the deliberations, he said.
“I have a laser focus on making sure the key leaders from Progress feel included and part of this team,” Rogers said. The company expects to shed about 1,800 workers and about 1,200 already have accepted severance packages, he said. Some employees whose jobs are cut may be offered other positions, he said.
“I am surprised at the announcement of Bill Johnson’s resignation,” Edward S. Finley, chairman of the North Carolina Utilities Commission, said today in an e-mailed statement.
“My understanding based on Duke and Progress representations in our hearing was that Johnson would be CEO.” The timing of his departure “may raise questions,” Finley added.
The commission will ensure that customers get the benefits Duke promised them, Finley said. That included $650 million in savings from more efficient plant operations and a $70 million rate cut.
Rogers became Duke’s CEO in 2006 after it purchased Cinergy Corp., the Indiana-based utility owner he’d led, and became Duke chairman a year later. Under the Progress merger agreement, Rogers had a two-year contract to serve as chairman of the combined company.
Rogers may not want to continue running the company for much longer than that contract, Andrew Bischof, a Chicago-based equity analyst for Morningstar Inc. (MORN:US), said today in an interview.
“The question is how long will Rogers now stay on,” he said. “Duke has one of the better management teams. He’d be able to find a suitable candidate within those ranks.” Succession will probably be a key topic during the company’s third-quarter conference call with analysts, Bischof said.
Rogers “been doing it for a long time and he’s capable,” said Mark Maloney, who helps manage $4.5 billion at Manulife Asset Management US LLC in Boston, including about $1 million of Duke shares. “I’d be more concerned if there weren’t a CEO.”
Rogers and Johnson have revealed differing political views, Maloney said. Rogers is co-chairman and lead fund-raiser for this year’s Democratic National Convention in Charlotte, North Carolina. Johnson is more politically conservative, Maloney said.
Rogers has donated $71,600 in the past two years to political campaigns, according to OpenSecrets.org, which compiles political contributions. His donations to individual politicians have all been to Democrats, including President Barack Obama, former Virginia Governor Tim Kaine and Senator Mary Landrieu of Louisiana.
Progress Energy has donated $32,367 to political campaigns during the 2012 election cycle, with 66 percent going to Republican candidates. Duke Energy has donated $167,155 to candidates, 53 percent for Republicans, according to data compiled by Bloomberg.
With Johnson departing, Duke will need to craft a new succession plan, Andrew Smith, an analyst for St. Louis-based Edward Jones & Co., said today in an interview. He rates Duke shares at hold and owns none.
Johnson’s ability to lead may have been called into question over his handling of repairs at Progress’s Crystal River 3 nuclear reactor in Florida, said Jim Warren, executive director of North Carolina Waste Awareness and Reduction Network, a utility watchdog group.
About three months after the acquisition by Duke was announced, Progress disclosed unexpected damage to the reactor’s containment building while crews were repairing an earlier crack. There were reports last year that Progress engineers further damaged the facility by attempting to fix cracks in its concrete shell by themselves, Warren said.
“It may have raised questions about judgment,” Warren said in a phone interview today. “It represents a multibillion- dollar problem that’s also very embarrassing.” The plant remains shut.
Resolving the cost of the repairs to be covered by insurance, shareholders and utility customers will be the company’s third priority after cutting costs and improving efficiency as the two companies combine operations, Rogers said today on a conference call with analysts.
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