By Katherine Blunt
NextEra Energy Inc.'s pursuit of Duke Energy Corp. could result
in a merger of utility giants that could speed the renewable-energy
transition throughout the South and Midwest.
NextEra, the nation's largest renewable-energy company, is
seeking to expand its regulated utility business. Duke, meanwhile,
recently proposed plans to invest heavily in renewables as it works
to cut carbon emissions and reshape a power-generation portfolio
largely reliant on fossil fuels.
The Wall Street Journal reported Tuesday that Duke had recently
rebuffed a takeover approach from NextEra, which was testing the
waters on a deal whose value would likely exceed $60 billion.
NextEra remains interested in pursuing a deal, people familiar with
the matter said, but there is no guarantee NextEra will continue
its pursuit or succeed in closing a deal.
Duke declined to comment. NextEra didn't respond to a request
for comment. Duke's shares rose 7.5% Wednesday while NextEra shares
closed down 2%.
At an investor conference Wednesday, NextEra Chief Executive
James Robo declined to directly address reports of a potential
merger but said the company has long sought opportunities that suit
its utility "playbook," which involves improving management
strategies and cutting costs while investing heavily in the grid.
He said NextEra isn't inclined to pursue hostile takeovers, given
the constraints of the regulatory environment.
"Anything that we do always has to be mutual, because you can't
get state regulatory approval without a mutual approach to going
and getting all the stakeholders on board," he said.
Analysts said such a deal could allow NextEra to capitalize on
Duke's plans to invest $56 billion over the next five years as it
works to replace coal- and gas-fired power plants with new solar
and wind farms. Duke late last month filed a 15-year plan with
regulators in North Carolina and South Carolina that offered
several pathways to halving carbon emissions by 2030, including by
accelerating coal plant retirements and investing in energy storage
and other technologies.
"Duke is a company that's just getting going on the energy
transition," said Vertical Research Partners analyst Jonathan
Arnold. "If you're NextEra, you're going to present yourself as
someone who can help accelerate that transition and do it more
cheaply."
If a merger were to occur, it would be the largest ever
completed in the utility space. The combined company would have a
market value of roughly $200 billion. That's substantially larger
than the next two largest U.S. utility companies, Dominion Energy
Inc. and Southern Co., valued at roughly $67 billion and $56.7
billion, respectively, and larger than the biggest U.S. oil
companies, Exxon Mobil Corp. and Chevron Corp.
NextEra, based in Juno Beach, Fla., is in a position of strength
following years of rapid growth as it built out wind and solar
farms nationwide without accruing debt. It went from being the 30th
largest U.S. power company in 2001 to the largest today, and its
shares trade at a premium to other utilities.
Duke, based in Charlotte, N.C., meanwhile lost roughly 14% of
its value this year as coronavirus lockdowns sapped commercial
power demand. The company also recently pulled the plug on the $8
billion Atlantic Coast Pipeline, a major natural-gas project it was
building in partnership with Dominion that faced environmental
opposition.
"If NextEra were trading closer to its peers, this would be a
different conversation," said Shelby Tucker, managing director at
RBC Capital Markets.
Merging the two companies would face steep regulatory and
political hurdles. It would require signoff from state regulators
in multiple states, as well as federal regulators. Together, Duke
and NextEra serve more than 13 million electricity customers in the
Carolinas, Florida, Indiana, Ohio, Tennessee and Kentucky, raising
questions about whether federal regulators would allow them to
consolidate.
"There could be a Federal Trade Commission problem, or at least
very strict scrutiny on an antitrust basis," said Raymond James
analyst Pavel Molchanov.
The deal could also face political hurdles, particularly in
North Carolina, where Duke has deep roots and has voiced support
for clean energy goals put forth by Gov. Roy Cooper, a
Democrat.
"North Carolina is proud to be the home of Duke Energy," Mr.
Cooper said in a press conference Wednesday.
NextEra has been unsuccessful in recent attempts to expand its
regulated utility holdings outside of its home base in Florida.
In 2016, Hawaiian regulators blocked its bid to purchase the
state's largest utility. The following year, Texas regulators
blocked NextEra's $6.8 billion bid to purchase Oncor Electric
Delivery Co., a company that operated most of the state's power
grid. Sempra Energy ended up buying Oncor.
NextEra's last substantial acquisition occurred in 2018 with its
$5.1 billion to purchase Gulf Power, a Florida utility that serves
about 500,000 customers in the state's panhandle counties, from
Southern. The acquisition fit well with NextEra's electric utility,
Florida Power & Light, which serves a large portion of central
and southern Florida.
During Wednesday's investor conference, Mr. Robo said NextEra
has learned from the challenges it has faced in completing
acquisitions and modified its strategy as a result.
"Everything that we ever look at, we come away with a deeper
knowledge and a better understanding of where we can deploy our
capabilities," he said.
--Russell Gold contributed to this article.
(END) Dow Jones Newswires
September 30, 2020 17:48 ET (21:48 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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