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Duke Energy eyes organic growth in Piedmont deal; international sale progressing

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Duke Energy eyes organic growth in Piedmont deal; international sale progressing

executives seeorganic growth opportunities arising out of the company's proposed of ,but have no near-term plans to digest more gas assets.

"We'reexcited about what the potential of the Piedmont acquisition represents forDuke, and our focus here in 2016 is on closing the transaction and alsoprogressing Atlantic Coast pipeline and Sabal Trail," President, Chairmanand CEO Lynn Good said May 3 on the company's first-quarter 2016 call. "We also seegrowth within the Piedmont franchise, both with customer additions, as well asinfrastructure that would support gas generation here in the Carolinas. Weexpect to continue to build on that platform."

Good,responding to an analyst's question about more gas M&A possibilities, saidmanagement will "look at assets that make sense for Duke, whether they'remidstream or local distribution companies, but [we] don't have anything morespecific to share … at this point."

TheNorth Carolina Utilities Commission has scheduled a July 18 hearing on thePiedmont acquisition and Duke "remains confident" the transactionwill close before the end of the year.

Thecompany also has been focused on exitingDuke Energy International LLC,which owns 4,400 MW of mostly hydro generation in Central and South America.The potential sale will not include Duke's 25% equity investment in SaudiArabian methanol producer National Methanol Co.

DEIsaw a year-over-year increase of approximately $87 million in first-quarteradjusted segment income at $123 million, helped by a favorable tax adjustmentand stronger results in Brazil, as hydrology returned to more normalconditions.

However,management has said while the business produces strong cash flow, it also has shownsubstantial volatility,resulting in an earnings overhangon the company throughout 2015.

"We'vebegun initial steps in marketing the assets, including signing non-disclosureagreements and providing information to interested parties," Good said. "Thisbusiness includes high-quality assets, which we believe will attractsignificant interest from potential buyers."

Askedwhether Duke would consider multiple transactions versus a packaged deal, theCEO said the company is "pleased" with where it is in the process.

"There'sbeen good market interest in the assets," Good said. "We're still inpreliminary phases, so I can't speak to whether or not the transaction will bea single transaction or a combination. Our objective will be to optimize thevalue of the portfolio … but I would say we're off to a solid start on theprocess."

Gooddid acknowledge that a piecemeal transaction would impact timing.

MorganStanley Research analysts saidin April that the total equity value of Duke Energy's international business isapproximately $2.1 billion with a potential sale resulting in 3% to 4% EPSdilution, or approximately 17 cents per share.

GuggenheimSecurities LLC said it expects a sale announcement soon.

"Theassets are actually in better shape since the 2014 process, and hydrologyconditions have been improving with [the] very wet rainy season,"Guggenheim analyst Shahriar Pourreza wrote in a May 3 research report, noting asale could generate net proceeds of $2.4 billion.

"[W]ebelieve potential buyers include strategics and regionally-focused financialsfrom Asia" and the European Union, Pourreza said.