UPDATE 3-Duke Energy to buy Progress Energy for $13.7 bln

* Offer at $46.48/shr in stock, premium of 4 pct

* Duke to assume $12.2 bln in debt

* Deal to create biggest U.S. power company

* Shares fall in early trading
(Adds CEO, analyst comments, byline)

By Matt Daily

NEW YORK, Jan 10 (BestGrowthStock) – Duke Energy (DUK.N: ) said on
Monday it agreed to buy Progress Energy Inc (PGN.N: ) for $13.7
billion in stock, creating the largest U.S. power company if it
wins approval from regulators in North and South Carolina.

The transaction would create an industry giant with
approximately 7.1 million electricity customers in North
Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio,
and 57,000 megawatts of generating capacity.

Duke’s offer was a modest 6.4 percent premium over the last
20 trading days, the company said, and the deal would be
accretive to Duke’s earnings in the first year after
completion.

Duke is currently the third-largest U.S. utility and would
become both the largest in market value and generating capacity
if the purchase is completed.

That could create a hurdle for regulators, who have blocked
or created roadblocks in other acquisitions in recent years.
But analysts said the deal stood a good chance of winning
approval.

“As long as there is assurance and protections in place
that will both prove the financial strength of the company and
benefit the consumers, then regulators will approve it,” said
Nathan Judge, an analyst with Atlantic Equities in London.

Duke CEO and Chairman Jim Rogers told Reuters the new
company would see savings in the Carolinas of $600 million to
$800 million over five years due to the benefits of combining
their fuel costs and delivery systems.

That savings would be passed on to customers there, but the
companies said it was too early to estimate what the overall
cost savings of the link-up would be.

Still, the deal would likely allow the combined company to
increase its dividend.

“It really enhances our ability to grow the dividend going
forward,” Rogers said. “Our plans are to grow the dividend at
slightly less than the growth in our earnings.”

The companies would target earnings-per-share growth of 4
percent to 6 percent annually.

Rogers, who joined Duke when the company bought Cinergy for
$9 billion in 2006, said the industry could be set for a new
wave of consolidation as companies seek growth in their balance
sheets to finance ever-increasing costs expected in the coming
years.

Power deals in the past year include FirstEnergy’s (FE.N: )
$4.7 billion deal for Allegheny Energy (AYE.N: ); E.ON’s $6.7
billion sale of its U.S. unit to PPL Corp (PPL.N: ); and Carl
Icahn’s recent bid to buy power producer Dynegy (DYN.N: ).

State regulators have sought drastic concessions from
companies planning to merge, such as rate reductions.

In a previous spate of mergers the middle of the last
decade, planned mergers of FPL Group (FPL.N: ) and Constellation
Energy Group (CEG.N: ), as well as Exelon (EXC.N: ) and Public
Service Enterprise Group (PEG.N: ) fell apart after regulatory
problems arose.

Even mergers that do succeed can drag on for long periods
before closing. FirstEnergy has yet to complete its transaction
for Allegheny, which was agreed upon 11 months ago.

Duke last year lost out on a bid for the U.S. assets of
German utility E.ON (EONGn.DE: ).

Duke said Progress Energy shareholders would receive 2.6125
shares of common stock of Duke Energy for each share held, or
$46.48 per share, representing a 4 percent premium to the
stock’s Friday close on the New York Stock Exchange.

Duke Energy said it will assume about $12.2 billion in
Progress Energy’s debt. The company also expects to effect a
reverse stock split immediately prior to closing.

Rogers was expected to become chairman of the new company,
while Bill Johnson, the chairman and CEO of Progress, would
become CEO of the merged companies.

J.P. Morgan was Duke’s lead financial adviser, with Bank of
America Merrill Lynch providing a fairness opinion. Lazard
served as lead financial adviser to Progress Energy, which was
also advised by Barclays Capital.

Duke Energy shares were down 1.4 percent at 17.54 on the
New York Stock Exchange, while Progress Energy shares fell 1.5
percent to $44.07.
(Reporting by Matt Daily, additional reporting by Michael
Erman and Thyagaraju Adinarayan in Bangalore; Editing by
Maureen Bavdek)