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Why are Progress and Duke merging?

We believe this merger is in the best interest of our companies, our shareholders and our customers.  This combination will create the largest regulated utility company in the country and better enable us to manage the transformation our industry is facing.  Our industry is entering a building phase where we must invest in an array of new technologies to reduce our environmental footprints and become more efficient.  By merging our companies, we can do that more economically for our customers, improve shareholder value and continue to ­grow. 

This transaction also supports our objectives of growing the regulated business, and providing consistent and predictable earnings and cash flows to continue to support our dividend payments and maintain our balance sheet strength. 

When will the merger be complete?  How long will it take?

Completion of the merger is conditioned upon the approval of the shareholders of both companies. Necessary regulatory filings include: the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), the North Carolina Utilities Commission (NCUC) and the Kentucky Public Service Commission (KPSC). The South Carolina Public Service Commission (SCPSC) must approve the joint-dispatch plan for the Carolinas utilities. The companies will also provide information regarding the merger to their other state regulators, including the public utility commissions in Florida, Indiana and Ohio. The companies are targeting a closing by the end of 2011.

At the announcement date, we believed that merger approval was needed in North Carolina and South Carolina. However, based upon subsequent discussions with the Kentucky Commission, we believe KPSC approval is needed. We have also since determined that merger approval is not required in South Carolina, though the SCPSC must approve the joint-dispatch agreement and allocation.

• The KPSC has the authority to approve/disapprove of the acquisition or transfer of ownership or control of any utility jurisdictional to it. The KPSC “shall” grant its approval if the acquirer has the financial, technical and managerial abilities to provide reasonable service and if the acquisition is made “for a proper purpose” and is “consistent with the public interest”.

• Under the statute, the term “transfer of control” can mean either the direct or indirect ability or power to affect the direction of the management and policies of a utility in several ways, including through the ownership of voting securities. “Control” is presumed to exist if any individual or entity, directly or indirectly, owns/acquires ten percent (10%) or more of the voting securities of the utility.

• Because Progress shareholders will own more than 10% of the combined company, and Progress will name more than 10% of the combined board of directors, and Duke Energy Kentucky, Inc. is an indirect wholly-owned subsidiary of Duke Energy, the KPSC believes it has jurisdiction of our merger.

In Florida, there is no statutory merger approval requirement, and the ownership structure of Indiana and Ohio does not change directly or indirectly as a result of this transaction. Whether specific merger filings are required or not, we intend to provide information to each of our state regulators regarding the benefits of this transaction. We do not expect this transaction, by itself, impacts the timing of our anticipated rate cases.

Why is this deal in the best interests of Duke Energy’s shareholders?  Progress Energy’s shareholders?

The combination supports our objectives of growing the regulated business and providing consistent and predictable earnings and cash flows to continue to support our dividend payments and maintain our balance sheet strength.  The combination is expected to be immediately accretive to earnings per share in the first year after closing and the combined company expects to pay a quarterly cash dividend of 24.5 cents per common share, which represents a 3 percent dividend increase for Progress shareholders, after adjusting for the exchange ratio.

What are the synergies (cost savings) resulting from this transaction?  What is the time frame to realize the synergies?

Once the deal is complete, we expect to realize immediate customer benefits from savings related to fuel and the joint dispatch of our generation.  Additionally, other non-fuel related efficiencies are expected from the leveraging of operational and customer service best practices that will lower our costs and increase our service levels to customers. Progress and Duke expect to realize synergies in a number of areas, particularly where the companies have duplicative operations and functions. The efficiencies we expect to result from this transaction will help us mitigate the future customer rate increases we expect for our customers as we reinvest in the business for the future.

What can the combined entity provide that the two companies can’t (and don’t already) provide?

The combined company will provide continued significant benefits for shareholders, customers, employees and the communities we serve.  Combining Duke and Progress Energy creates a utility with greater financial strength and enhanced ability to meet head-on the challenges we both face.  Changes in the industry require investments in an array of new technologies to reduce our environmental footprints and become more efficient.  By merging the two companies, we can do that more economically for our customers, improve shareholder value and continue to grow.
Benefits of the transaction include:

  • Efficiencies to help us mitigate future rate increases for our customers as we reinvest in the business for the future.
  • Immediate customer benefits from savings related to fuel and the joint dispatch of our generation. 
  • Other non-fuel related efficiencies from the leveraging of operational and customer service best practices that will lower our costs and increase our service levels to customers.
  • Ability to continue to grow the regulated business, provide consistent and predictable earnings and cash flows, support our dividend payments and maintain our balance sheet strength.

What does a customer stand to gain here other than perhaps a slowed rise in costs?

This merger is about creating a company with the right size, scale and diversity to manage the transformation our industry is facing.  The efficiencies we expect to gain from this transaction will help us mitigate the future rate increases we expect for our customers as we reinvest in the business for the future. That means further investments to replace aging plants and infrastructures, modernizing our smart grid technology, and meeting new environmental standards with renewable and alternative energy options that are environmentally responsible.

Our new combined company will continue the shared traditions of superior customer service, safety and reliability that customers have come to expect, and will be better positioned for effective restoration response going forward.

What are your plans for consolidating the two companies?

Integration teams from both companies will develop a detailed, thoughtful plan to integrate the companies and ensure a smooth transition for employees and customers. We are fortunate that both companies have successful track records of handling large-scale transitions.

The timing of our integration planning efforts will coincide with the regulatory approval timeline.  Until the transaction closes, the companies will continue to operate as separate entities. As we work through the integration process, each company will remain focused on the important work we do now -- providing strong customer service and operational excellence with a commitment to safe, reliable operations.

Will there be layoffs as a result of the merger? How many jobs will be lost?

Yes, we anticipate there will be job reductions at both companies as we merge operations in the years ahead. At this point, we do not have a predetermined number or goal. We will work to minimize the number of reductions by taking advantage of savings in other areas first (including fuel efficiencies and joint dispatch in the Carolinas).

We currently anticipate that positions will not be eliminated until the merger is approved, which we expect to take about a year, and reductions will be phased in over several years.

In the coming months, we will be working to plan the integration of our operations. That comprehensive analysis will drive organizational decisions and staffing levels. The multi-year transition period also will help to further minimize reductions through attrition, retirements and managing of vacancies.

Until the transaction closes, the companies will continue to operate as separate entities.  As we work through the integration process, each company will remain focused on the important work we do now -- providing strong customer service and operational excellence with a commitment to safe, reliable operations.

Please describe the FERC market power test. With substantially all of the service territory in the Carolinas, how do you anticipate passing the market power test?

FERC has a well established set of rules for evaluating a potential merger transaction. We will make a filing with FERC shortly,outlining our position related to these rules and provisions. We do not anticipate any issues in meeting the FERC standards.

The nature of the wholesale generation markets regulated by FERC have evolved and changed over the past few years. For example, Progress has divested all of its unregulated merchant generation fleet in the Southeast since 2005. Additionally there is now less excess generation available for sale after the companies satisfy their native load obligations than in years past. In fact, the companies, especially Progress Energy Carolinas, tend to be net buyers of excess generation now rather than net sellers. Therefore, the combination of these two companies should satisfy the market power test typically applied by FERC in evaluating transactions in markets like those the companies operate in.

What will Jim Rogers’ role be in the new company?

Jim Rogers will serve as the executive chairman and will fulfill important roles internally and externally for the Company.  Internally, he will advise and counsel the CEO on strategic and other matters.  He will chair board of directors meetings and will represent the board to the public.

Externally, the executive chairman will serve as the company’s primary spokesman on matters of national and international energy policy.  He will continue his involvement in global initiatives important to the company’s strategy, as well as the assessment of technological development and deployment.  Along with the CEO, he will also play an active role in the company’s governmental relations and activities at the national and state levels.  His work in these areas will help to shape and develop the company’s long-term strategy.

What is a Reverse Stock Split

As part of the Duke Energy-Progress Energy merger, Duke’s board of directors approved a reverse stock split, and has now set the reverse stock split ratio at 1-for-3. Here’s a primer on how this would work.

In a reverse stock split, a publicly traded company reduces the number of outstanding shares in proportion to the split ratio. Because the company will only be changing the number of outstanding shares, this should not change the company’s overall valuation. Assuming the company’s overall valuation does not change, the price per share should increase proportionally. 

See the table below, which illustrates the changes for Duke shares and dividends.

A reverse stock split has no effect on a company’s operational performance. As a result, the company’s total market capitalization should not change solely because of the reverse stock split.

Why do a reverse stock split?

There are a number of reasons. For Duke, the reverse stock split is expected to bring the company’s stock price more in line with our peer companies and would reduce the number of shares outstanding.

Currently, Duke has more than 1.3 billion outstanding shares. After the Duke/Progress merger closes, if there were no reverse stock split, the company would have to issue approximately 750 million additional shares, bringing the total to more than 2 billion shares, which is a very large amount.

Doing a reverse stock split makes sense for the company so that the total number of outstanding shares is more manageable. By reducing the number of shares outstanding, the reverse stock split would also ensure that Duke will have enough shares authorized for issuance to Progress Energy shareholders in the merger.

What does the reverse stock split mean for the dividend?

It would work in much the same way as for the number of shares of stock. After a 1:3 reverse stock split, you would own one-third as many shares, but we expect the quarterly dividend per share would triple. This assumes Duke’s board maintains the dividend at its current level and adjusts it for the reverse stock split. In that case, the monetary value of your total dividend would not change. 

For example

The table below provides an illustrative example of the effect of a 1:3 reverse stock split, based on the assumptions described above.

Illustrative Example Number
of shares owned
Price
per share
Quarterly dividend
earned per share
Total value
of your holdings
Before a reverse stock split 300 $18 24.5 cents $5,400 value of shares
$73.50 quarterly dividend
Immediately after a reverse stock split 100 $54 73.5 cents $5,400 value of shares
$73.50 quarterly dividend

Notes:

  • The reverse stock split would become effective if, and at the time, the merger is completed, at a ratio of 1:3, to be determined by Duke’s board of directors after consultation with Progress Energy. 
  • The example presented in the table assumes for the reasons we have described that the reverse stock split does not change the company’s total market valuation and that Duke’s board of directors adjusts Duke’s current quarterly dividend to reflect the reverse stock split

Cautionary Statements Regarding Forward-Looking Information
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” and other words and terms of similar meaning.  Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Duke Energy and Progress Energy caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Such forward-looking statements include, but are not limited to, statements about the benefits of the proposed merger involving Duke Energy and Progress Energy, including future financial and operating results, Progress Energy’s or Duke Energy’s plans, objectives, expectations and intentions, the expected timing of completion of the transaction, and other statements that are not historical facts.  Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include risks and uncertainties relating to: the ability to obtain the requisite Duke Energy and Progress Energy shareholder approvals; the risk that Progress Energy or Duke Energy may be unable to obtain governmental and regulatory approvals required for the merger, or required governmental and regulatory approvals may delay the merger or result in the imposition of conditions that could cause the parties to abandon the merger; the risk that a condition to closing of the merger may not be satisfied; the timing to consummate the proposed merger; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; the diversion of management time on merger-related issues; general worldwide economic conditions and related uncertainties; the effect of changes in governmental regulations; and other factors discussed or referred to in the “Risk Factors” section of each of Duke Energy’s and Progress Energy’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). These risks, as well as other risks associated with the merger, are more fully discussed in the preliminary joint proxy statement/prospectus that is included in the Registration Statement on Form S-4 that was filed by Duke Energy with the SEC on March 17, 2011 in connection with the merger as well as in any amendments to that Registration Statement filed after that date.  Additional risks and uncertainties are identified and discussed in Progress Energy’s and Duke Energy’s reports filed with the SEC and available at the SEC’s website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement and neither Progress Energy nor Duke Energy undertakes any obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

Additional Information and Where to Find It
This document does not constitute an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed merger between Duke Energy and Progress Energy, on March 17, 2011, Duke Energy filed with the SEC a Registration Statement on Form S-4 that included a preliminary joint proxy statement of Duke Energy and Progress Energy that also constitutes a preliminary prospectus of Duke Energy and on April 8, 2011, April 25, 2011 and May 13, 2011 Duke Energy filed with the SEC amendments to that Registration Statement. These materials are not yet final and may be further amended.  Duke Energy and Progress Energy will deliver the definitive joint proxy statement/prospectus to their respective shareholders. Duke Energy and Progress Energy urge investors and shareholders to read the preliminary joint proxy statement/prospectus regarding the proposed merger and the definitive joint proxy statement/prospectus, when it becomes available, as well as other documents filed with the SEC, because they contain or will contain important information. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website (www.sec.gov). You may also obtain these documents, free of charge, from Duke Energy's website (www.duke-energy.com) under the heading "Investors" and then under the heading "Financials/SEC Filings." You may also obtain these documents, free of charge, from Progress Energy's website (www.progress-energy.com) under the tab "Investors" and then under the heading "SEC Filings."

Participants in the Merger Solicitation
Duke Energy, Progress Energy, and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Duke Energy and Progress Energy shareholders in favor of the merger and related matters. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of Duke Energy and Progress Energy shareholders in connection with the proposed merger is contained in the preliminary joint proxy statement/prospectus and will be contained in the definitive joint proxy statement/prospectus when it becomes available. You can find information about Duke Energy’s executive officers and directors in its definitive proxy statement filed with the SEC on March 17, 2011. You can find information about Progress Energy’s executive officers and directors in its definitive proxy statement filed with the SEC on March 31, 2011 and Amendment No. 1 to its Annual Report on Form 10-K filed with the SEC on March 17, 2011. Additional information about Duke Energy’s executive officers and directors and Progress Energy’s executive officers and directors can be found in the above-referenced Registration Statement on Form S-4. You can obtain free copies of these documents from Duke Energy and Progress Energy using the contact information above.