US utilities company Duke Energy is to enter the big five of US energy suppliers by acquiring smaller rival Cinergy in a $9.1 billion deal.
The combined company, which will have a value of $36 billion and sales of $27 billion, will become a dominant force in the Mid-West where the two organizations enjoy traditional strength.
The combination is a neat complimentary fit according to Paul Anderson, Duke’s chief executive. Cinergy is a short power provider, while Duke is a long power company, and Cinergy derives its power from coal in contrast to Duke’s exclusive use of gas.
As a result, the merger will fulfill Duke’s desire to improve its business model by offering greater diversity of services, while reducing reliance on gas supply and therefore exposure to fluctuating gas prices.
To secure the agreement Duke agreed to offer $45.80 per Cinergy share, representing a premium of more than 13% on Cinergy’s closing price before the deal.
The new combined entity will be 76% owned by Duke shareholders and 24% by Cinergy’s and, according to the BBC, it will save the power provider near to $400 million per year. However, the downside for the employees of the two companies is that greater combined efficiencies will result in 5% of the 29,350-person workforce being made redundant.