Monday, December 3, 2012
You may remember last summer there was a bit of a kerfluffle over the post-closing CEO change at the combined Duke Energy-Progress Energy. When the North Carolina based energy firm announced its merger with Progress, it stated that Progress Energy CEO William Johnson would lead the combined company post-closing. When the merger closed on July 2, 2012 the board met and immediately fired Johnson and replaced him at CEO with Duke Energy CEO James Rogers. For those of us on the outside, this whole episode was a little odd, and raised some questions about how much parties in mergers of equals actually have to negotiate post-closing leadership and employment questions.
However, the quick leadership change also raised questions with state regulators. Almost immediately after the firing of Johnson, the North Carolina Utilities Commission, which was required to approve the merger, opened an investigation. Central to that investigation were the statement made to the commission related to the post-closing leadership structure of the combined firm. The commission was told that Johnson would lead the firm and relied on those statements in order to approve the transaction. Since that turned out not to be true almost immediately following closing, the NCUC wanted another look. The hearings related to the merger were held throughout the summer. The documents and audio files of their hearings can be found here.
Now, Duke and the NCUC have reached a settlement. And ... well ... it's pretty clear that the NCUC is unhappy with the quick leadership change. So, they want a couple of scalps. The settlement includes the resignation of CEO James Rogers. A new board committee will be set up to search for a replacement CEO. Duke is required to re-hire the former Progress GC to advise the corporation on North Carolina regulatory issues. Duke will hire a new GC, so long as that new hire was not involved in any of Duke's representations to the NCUC leading up to the merger. And, a former Progress manager will take over as head of state-regulated power susidiaries.
Duke is also required to maintain its corporate headquarters and at least 1,000 employees in North Carolina for at least five years. There is $25 million in givebacks to North Carolina consumers. And, Duke is required to issue what can only be described as a corporate apology to the NCUC acknowledging to the NCUC that it had fallen short of the NCUC's understanding of Duke's obligations under its "regulatory compact" with the state.
The settlement itself is pretty much a house-cleaning of Duke managers at the very top and an attempt by the NCUC to put Progress employees back in a position to exert some influence. Lesson here for transaction lawyers - be careful what you say to regulators. If you don't mean it, it may come back to haunt you.