In outlining Duke Energy's transition from an "energy superstore" into "two pure-play powerhouses," CEO James Rogers predicted that the new Duke Energy pure-play electric company would grow ongoing diluted earnings per share by an average of 4-6% over at least the next three years through solid organic growth and a 1-1.5%/year increase in electricity demand.
Duke Chairman Paul M. Anderson said that the new stand-alone gas company, GasCo, is expected to grow ongoing diluted earnings per share by an average of 5-7% over at least the next three years.
The company is targeting a Jan. 1, 2007 effective date to spin off its gas-related businesses into a separate, autonomous company (see Daily GPI, June 29). Duke previously estimated the gas company's total capitalization at around $15.4 billion, including $6.17 billion in equity and $8.71 billion worth of debt.
"Considering all of the factors, it became clear to us that today's market places a higher value on pure-play companies than on energy superstores -- and that's where we needed to go," said Anderson at the opening of the company's annual shareholders meeting.
"Our vision is simple -- to be the premier, pure-play midstream natural gas company in North America," Anderson said.
Duke Energy shareholders will receive 100% of GasCo's shares based on a distribution ratio to be announced later this year.
However, Rogers warned shareholders that once the split becomes effective, they will have to look at the two companies together to see what their total investment is. "It's important you understand that the stock price for Duke, with the ticker symbol DUK, probably will be lower when the spin is completed than it was just the day before," Rogers told shareholders. He estimated that "somewhere between 35% and 40%" of Duke Energy's value is being transferred to GasCo, which will have its own ticker symbol.
"Our goal is for each company to have a simple, straightforward road map to where it is going -- a road map that all stakeholders can easily understand," Rogers said.
He noted that the annual dividend will be split proportionately as well. The dividend payment from the two companies is expected to add up to what shareholders now receive, $1.28 per share of Duke Energy common stock.
"We believe over the long term, the value you will have in both companies will be higher than it would have been if we had not split the company," Rogers said.
Earlier this month, Duke Energy announced that Duke Energy Field Services, which is 50% owned by ConocoPhillips, will change to DCP Midstream, effective Jan. 1, 2007 (see Daily GPI, Oct. 9). At that time, Duke Energy's 50% ownership interest in DCP Midstream will transfer to GasCo.
During the meeting, shareholders reelected all 15 members of the board of directors to one-year terms. In accordance with a resolution passed at last year's annual meeting, all directors must be elected annually.
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