Progress Energy Inc. Chief Executive Officer Bill Johnson was a ‘terrific communicator’ and not the autocrat Duke Energy Corp. (DUK:US) CEO James Rogers described in a hearing on why Johnson was ousted from the combined company’s leadership, former Progress Energy director John Mullin III said.
Johnson exhibited few of the traits that Rogers said led Duke’s board to lose confidence in him as the $17.8 billion takeover of Progress closed, Mullin said yesterday in a telephone interview. Duke’s board decided to replace Johnson, who was supposed to become executive chairman, shortly after the deal closed July 2, Rogers said at a hearing at the North Carolina Utilities Commission July 10.
“I did not find Bill Johnson autocratic in the least,” Mullin said. “He was the most transparent CEO with whom I have had the pleasure of working and was a terrific communicator with our board and with Progress employees.”
Duke’s shares have dropped 4.8 percent since the merger closed and North Carolina’s attorney general is investigating whether the company’s leadership shuffle violated laws. The nation’s largest utility owner faces a “substantial fine” and tougher scrutiny in North Carolina, its biggest market, Hugh Wynne, a New York-based analyst with Sanford C. Bernstein & Co., said in a July 11 report.
“It will make us suspicious, a little less trusting of upper management going forward, starting with Mr. Rogers,” Robert Gruber, executive director of the Raleigh-based North Carolina Utilities Commission Public Staff, said in a telephone interview yesterday.
Duke, based in Charlotte, North Carolina, will face “full, long-drawn” hearings from state regulators when it seeks rate increases for its utilities later this year, Gruber said. The commission will also determine whether ratepayers were harmed when Duke unexpectedly dropped plans to name Johnson CEO and Rogers executive chairman.
North Carolina law allows the commission to rescind, alter or amend any prior order, said Sam Watson, the agency’s general counsel.
The odds of regulators overturning the merger are “remote,” Jim von Riesemann, a New York-based analyst with UBS AG, wrote in a July 10 research report.
Financial liabilities include paying out severance packages to Johnson and other departing executives, potential fines from the attorney general’s investigation and the cost of defending against lawsuits or federal investigations that may arise from the board’s actions, Wynne said.
“Where we are today is not where we intended to be, expected to be, or wanted to be,” Rogers said in testimony filed yesterday with the North Carolina Utilities Commission. “But good corporate governance requires that the board have confidence and trust in the CEO, especially at this critical juncture in Duke’s history.”
Rogers also faces internal dissention after three senior Johnson lieutenants resigned amid the management turmoil. Rogers identified the departing executives as Chief Administrative Officer Mark Mulhern, Chief Integration and Innovation Officer Paula Sims and Executive Vice President John McArthur.
Duke director E. Marie McKee, a former Progress board member, considered resigning after Johnson was forced out, Mullin said. McKee didn’t respond to voicemails and an e-mail seeking comment.
Tom Williams, a Duke spokesman, declined to comment about the departures in a telephone interview.
Rogers tried yesterday to repair relations with Duke’s 30,000 employees, fielding questions for two hours from workers in Raleigh, where Progress was based, Charlotte, Florida, Ohio and Indiana, Williams said.
The discussion centered on the leadership shuffle, mistrust of the new management regime and the exodus of Johnson’s senior officers, Williams said.
The two management teams clashed in the first quarter over a plan to address antitrust concerns in North and South Carolina and the fate of Progress’s shuttered Crystal River 3 nuclear plant, highlighting differences in corporate culture, Rogers said during the July 10 hearing.
Johnson viewed the transaction as a takeover of Duke by the smaller Progress, Rogers said. The board began to formally debate whether Johnson should lead the combined company in mid- May when it became clear the merger would be approved by federal energy regulators, Rogers said.
He first learned of the board’s reservations about Johnson on June 23, Rogers said.
The board debated the management shift in meetings during the next few days while Rogers and Johnson signed new contracts reflecting their previously announced roles following the merger, Rogers said.
Edward Finley Jr., the commission’s chairman, told Rogers during the hearing he had damaged his credibility by not advising commissioners of the management turmoil as regulators held their final merger deliberations before approving the takeover on June 29.
“Corporate decisions are announced after they are made, not when they are being contemplated,” Rogers said in filed testimony.
Under the terms of the takeover agreement, the new board consisted of 11 Duke representatives and seven from Progress. Shortly after the merger closed, the board met without Johnson or Rogers and voted 10-5 in favor of ousting Johnson, Rogers said.
All votes in favor came from former Duke board members and all against were former Progress directors. Duke’s board retained the New York City-based law firm of Wachtell Lipton Rosen & Katz for advice before Johnson’s exit, Williams said.
Duke rose 0.5 percent to $66.48 yesterday in New York. The shares have gained 0.7 percent this year.
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