In a previous post, we discussed the emerging controversy surrounding the merger of Duke Energy Corp. and Progress Energy. Since then, the problems facing the company have only increased, as those dissatisfied with the sudden CEO change have voiced their concerns about the future of the business.
The company is facing a number of significant issues now that the testimony before the North Carolina Utilities Commission has concluded. First, a shareholder lawsuit has been filed, claiming that the company misled its investors by effecting the CEO change so quickly after the merger. The class action suit is intended to include all those who purchased Duke stock beginning the day before the merger was approved until the day before the new CEO testified before the Commission.
After the announcement of the lawsuit, Standard & Poor’s indicated it was downgrading Duke’s credit rating from A- to BBB+, with a possibility of lower ratings in the ensuing 12 to 18 months. The rating agency specifically noted the CEO switch in the moments after the merger as a cause of concern, referring to the “lack of transparency” in the process. Standard & Poor’s explained the lowered rating, stating that the “abrupt leadership changes at the company have heightened regulatory risk in North Carolina and likely in Florida, significantly weakening the company’s consolidated ‘excellent’ business risk profile under our criteria.”
The concern in Florida stems from a nuclear power plant that has been shutdown since 2009, and could require repairs costing as much as $1.3 billion.
In addition, two members of the former Progress Energy board, who joined the Duke board after the merger, have since resigned from their positions. Both suggested that the Duke board members should immediately begin a search for a new CEO.
Source: The Washington Post, “Standard & Poor’s lowers Duke Energy rating; move follows lawsuit filed by shareholders,” July 25, 2012.
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