Bill Johnson, the man who was CEO of Duke Energy Corp. for eight hours after its $17.8 billion takeover of Progress Energy Inc., said Duke sought to cancel the deal after federal officials raised objections to the merger.
Tensions flared between the companies’ executive teams as Duke worried about the costs of complying with demands of the Federal Energy Regulatory Commission, Johnson said.
The former Progress CEO began testifying Thursday to the North Carolina Utilities Commission as the state expands its investigation into the last-minute executive change. Johnson, 58, was replaced by James Rogers, the CEO of Duke who was slated to become executive chairman after the merger closed.
North Carolina’s attorney general is also investigating the CEO shuffle, which is drawing scrutiny from regulators in Florida and Indiana.
Duke evaluated problems at Progress’s Crystal River nuclear plant in Florida as a “material adverse event” which would give them an excuse to get out of the takeover, Johnson testified. Rogers sought to “run out the clock” on the deal by proposing the formation of a regional transmission organization that would face state opposition, he said.
“It seemed like we were pulling them along and they were digging in their heels,” Johnson said. “It was a thin deal for Duke.”
Duke directors signed an employment agreement with Johnson on June 27. The,n after the transaction closed, voted to request his resignation, according to filings.
Johnson now has the chance to refute statements by Rogers, who told the agency on July 10 that Duke’s board lost confidence in the incoming CEO because of his “autocratic style” and his handling of Progress’s nuclear fleet.
Shareholders have sued Charlotte, N.C.-based Duke’s directors for allegedly misleading them and damaging the company’s reputation.
The “soap opera” is a distraction at a time when Rogers, 64, and Duke’s board should be focused on knitting together the companies into the largest U.S. utility owner, Paul Patterson, a New York City-based analyst with Glenrock Associates LLC, said. “The management team needs to get on with the business of managing,” he said.
North Carolina law allows the commission to rescind, alter or amend its June 29 order approving the merger.
“I don’t think it’s going to be unwound, that would be really unprecedented,” Lewis Hay III, executive chairman of NextEra Energy Inc., said. “But we don’t have all the facts, and we’ll just have to see how it plays out.”
A spokeswoman for Johnson declined requests for a comment or an interview, citing a non-disparagement clause in his separation agreement with Duke. Johnson may receive as much as $44.7 million after his exit under a “mutual agreement,” according to regulatory filings.
Former Progress directors E. Marie McKee and James Hyler Jr., who joined the Duke board following the merger, will testify after Johnson. Both McKee and Hyler also declined to comment.
The backlash to the CEO switch is unlikely to cost Rogers his job, since Duke needs him to lead the integration effort, Hugh Wynne, a New York-based senior analyst with Sanford C. Bernstein & Co., said.
Rogers has been asked to testify again about the merger at an Aug. 13 hearing in Florida on Crystal River Unit 3, a reactor that has been closed since 2009. The Florida Public Service Commission has also requested a copy of a study Duke’s board commissioned as it evaluated Johnson’s handling of the central Florida plant.
Duke is currently undergoing hearings in Indiana regarding its Edwardsport coal-gasification project, a $3.3 billion plant that is over budget and behind schedule.
Rogers told the North Carolina commission last week that he first learned of the board’s concerns with Johnson on June 23. He met with directors Ann Maynard Gray and Michael Browning a day later and agreed to take the CEO job if Johnson were replaced.
On Wednesday, the commission rejected the company's request to delay testimony scheduled Friday from Browning and Gray. Browning, an Indianapolis real estate developer and businessman, has been director of Duke and its predecessor utilities in Indiana and Ohio since 1990.
Johnson became CEO of the combined company when the merger closed at 4:02 p.m. on July 2. The new board met an hour later without Rogers or Johnson and voted for the CEO change. The vote was 10-5, with all of the former Progress directors voting against. Johnson’s resignation was effective at 12:01 a.m.
“One obvious conclusion is the next merger discussion, whoever has it, is going to be very interesting,” said NextEra’s Hay. “The lawyers will probably make twice as much on that deal as the last one.”