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Ex-Progress CEO says Duke wanted out of merger
RALEIGH, North Carolina |
RALEIGH, North Carolina (Reuters) - Duke Energy Co felt "buyer's remorse" and sought to back out of the $18 billion deal to buy Progress Energy after federal regulators called for costly measures to curb the merged company's market power, former Progress CEO William Johnson said on Thursday.
In testimony before the North Carolina Utilities Commission, Johnson also said that repair problems at the company's damaged Crystal River nuclear unit were well known by Duke when it agreed to buy Progress in January 2011.
Johnson's statements were his first since he was ousted as Duke CEO in the board of directors' first act after the deal was closed on July 2, and stood in sharp contrast to testimony given last week by Duke CEO James Rogers.
Johnson said the deal received close scrutiny at the Federal Energy Regulatory Commission, which in December 2011 called for measures to reduce the combined company's market power that would cost Duke and Progress between $200 million and $225 million.
That triggered worries at Duke, Johnson said, and weeks later, Rogers and CFO Lynn Good told Wall Street analysts at a meeting that the company might not be able to close the deal, and that Duke would be better off on its own because of the regulatory barriers.
Soon Wall Street began speculating that Duke might try to use a "burdensome regulatory affect" clause in the merger agreement to halt the deal, he said.
"This is like dropping an atomic bomb on your deal," Johnson said.
A spokesman for Duke said the company never sought to back out of the merger with Progress, and denied that Duke executives had said the company would be better off without the deal.
But Johnson said that Progress, which had nearly agreed to be purchased by Southern Co before the Duke deal, had hired lawyers to make sure the Duke merger closed, even as tempers flared between the Duke and Progress executives.
"They wanted the merger, then they didn't want it, then they couldn't get out of it, and then they didn't want to be stuck with me as the person who dragged them into it," Johnson said.
The former executive also said he was angered by suggestions Rogers made to the Charlotte Business Journal early this year that Progress had agreed to be bought for a modest 5 percent premium over its then-market price in order for Johnson to become CEO.
"This was quite disrespectful, and my board was furious," he said. "I was furious."
Duke's purchase of Progress created the nation's largest utility, but has drawn anger from the regulators in Raleigh, where Progress is based, after Duke's board reversed its decision to have Johnson replace Rogers as CEO.
The newly merged Duke board, dominated by directors from the former Duke board, voted Johnson out minutes after he took the CEO spot despite the companies' stated plan for him to take the helm of the company from Rogers, who was to step aside and become the merged company's executive chairman.
One independent Progress board member who joined the new Duke board at completion of the merger said she had been blindsided by lead Duke director Ann Gray's quick effort to remove Johnson.
"I couldn't believe it. I didn't know whether to cry or throw up," Marie McKee told the NCUC.
McKee told the NCUC that she and the other four former Progress board members who were present during the meeting argued unsuccessfully for an hour to change the legacy Duke board members' opinions or postpone a vote.
Johnson, who at times grew emotional and appeared to choke back tears when he offered a goodbye to employees at his former company during his testimony, said he was stunned when Gray told him the board wanted his resignation.
"She represents the board, there is no appeal," Johnson said in response to a question from NCUC Chairman Edward Finley.
"Well maybe, maybe not," said Finley.
The NCUC has not indicated whether it would try to re-open its approval of the merger, or impose new financial conditions on it, although corporate governance experts have said the board was within its rights to change the CEO if it had concerns.
Finley's remark indicated that the NCUC is looking to take some action.
"The commission will have the last word on this," said Robert Gruber, executive director of the public staff of the utilities commission.
But one Duke lawyer blasted the NCUC for Finley's refusal to allow Duke to cross-examine Johnson during the hearing.
"This was a surprising and disappointing hearing," said Burley Mitchell, a former North Carolina Supreme Court chief justice now in private practice at law firm Womble, Carlyle, Sandridge and Rice, LLP.
"Some of the facts that were presented as facts are in dispute."
Rogers and Gray, who is scheduled to testify on Friday, have pointed to Johnson's handling of troublesome repairs at the Crystal River nuclear plant in Florida as a key reason for the board's decision to remove Johnson.
"We understood that the Crystal River nuclear plant had been shut down for repairs since 2009. However, we were told that Progress expected Crystal River to resume operations in April 2011, and that Progress expected significant insurance recoveries in connection with the repairs," Gray said in a filing to the commission earlier this week.
The 838-megawatt Crystal River reactor remains shut, and Progress had not secured insurance payments by the close of the Duke-Progress deal.
Duke has said it has not yet decided whether to pay for expensive repairs at Crystal River, or to seek a shutdown and perhaps build a new nuclear plant.
Johnson said Progress had openly discussed with both Duke and the public all the problems at the plant, and that Duke had sent a team to monitor the plant a year before the deal closed.
"This has been widely reported and widely disclosed," Johnson told the commission.
Before Thursday's hearing, Johnson had remained quiet, abiding by a "non-disparagement" clause in his separation contract which paid him a total stock and compensation package of about $44 million.
That clause, however, does not apply to comments made to the regulatory bodies.
Angry NCUC commissioners questioned Rogers last week about why the power company's board moved immediately from closing the merger to voting to ask for Johnson's resignation.
Rogers, who took the CEO job at Duke after the Charlotte, North Carolina-based company bought Cinergy, where he had been CEO, said there was no triggering event.
But he said Duke's board became discouraged with Johnson toward the end of the 18 months it took to win federal approval for the deal, Progress' handling of Crystal River, its weak financial results and Johnson's early moves toward integrating the two companies.
"They felt his style was autocratic and discouraged different points of view," Rogers testified.
Johnson, who was warmly greeted by Progress employees as he entered the building, said he had never been accused of being autocratic, but that he was driven toward closing the deal.
"I worked for him for 15 years and found him to be one of the most genuine people and a great leader, someone I really personally admire," Sharon Hall, a manager at the Progress side of the company, told Reuters.
"The day after (he was ousted) it felt like we had been punched in the gut."
(Editing by Eric Meijer, Gunna Dickson, David Gregorio and Phil Berlowitz)
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