Three former Progress Energy Inc. board members said they would have voted against Duke Energy Corp. (DUK:US)’s takeover had they known that Duke’s chief executive officer would remain in charge of the combined companies.
“I wouldn’t have voted for the deal,” James Bostic Jr., who served on Progress’s board since 2002, said in a phone interview today. “I believed that Bill Johnson would be able to run the combined companies in a more efficient manner and offer a much stronger return to shareholders.”
Duke announced on July 3 that Johnson, the chairman and CEO of Progress, had resigned and wouldn’t take over as president and CEO of the combined companies as planned as the $17.8 billion transaction was complete. Duke Chairman and CEO James Rogers, who was supposed to be chairman after the merger, was asked by the board to continue as CEO.
Standard & Poor’s put Duke, the largest U.S. utility owner by market value, on negative credit watch after “the abrupt change in executive leadership.” The surprise decision to change CEOs as its takeover closed was deceitful, according to John H. Mullin, who also served on Progress’s board.
“I do not believe that a single director of Progress would have voted for this transaction as structured with the knowledge that the CEO of Duke, Jim Rogers, would remain as the CEO of the combined company,” Mullin, a former managing director for investment banker Dillon Read & Co., wrote in a July 5 letter to the Wall Street Journal.
The new Duke board met without Rogers or Johnson and decided on the switch, Rogers said in a July 3 interview. Under terms of the merger, the board is composed of 11 Duke representatives and seven from Progress. Bostic and Mullin were among eight Progress directors who weren’t added to the new board.
North Carolina opened an investigation into the merger to determine if Duke Energy made misstatements regarding the takeover, according to an e-mailed statement from Roy Cooper, the state’s attorney general.
The North Carolina Utilities Commission, which approved the deal on June 29, is considering what steps it might take in the wake of Johnson’s exit, Sam Watson, general counsel for the agency, said in a phone interview today. The commission has the power to rescind any decision made by it, according to its rules.
“We do not comment on our board’s deliberations,” Tom Williams, a spokesman for Charlotte, North Carolina-based Duke, said in an e-mail. The company said on July 3 it wouldn’t comment further on Johnson’s resignation, which it has said was done by “mutual agreement.”
Johnson, who signed a non-disparagement agreement with Duke, didn’t respond to a voicemail message left at his North Carolina home.
“There was information that Duke didn’t share with us, and it may have changed the outcome,” Alfred Tollison, another former Progress director, said in a phone interview today. “Duke may have fulfilled the letter of the agreement, but they didn’t fulfill the spirit,” he said, referring to Johnson occupying the CEO position for one day.
The merger was announced in January 2011 and completed on July 2 after receiving state and federal approvals. Progress’s board unanimously recommended that shareholders vote in favor of the deal, according to a July 2011 regulatory filing.
“I don’t really have any idea what would have happened,” said Bostic, a former vice president of Georgia-Pacific LLC. “I expected that Johnson and Rogers were going to work together and they were going to make this a successful merger.”
Mullin’s letter was reported earlier today by the New York Times and Wall Street Journal.
Duke fell (DUK:US) 3.4 percent to $66.23 at the close in New York, the biggest decline since Aug. 10.
Johnson’s appointment as CEO of the new company was “a critical element in the merger deliberations,” Mullin wrote in the letter. “This is the most blatant example of corporate deceit that I have witnessed during a long career on Wall Street.”
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