Duke Energy, which said in June it would spin off its natural gas unit (see NGI, July 3), on Thursday put the gas company’s total capitalization at around $15.4 billion, including $6.17 billion in equity and $8.71 billion worth of debt. The separation is targeted for completion by Jan. 1, 2007.
According to Duke, Gas SpinCo Inc. (GasCo), will be one of the largest natural gas transmission, storage, gathering, processing and distribution businesses in North America, with more than 17,500 miles of natural gas transmission pipeline, 250 Bcf of natural gas storage capacity and 1.3 million retail gas customers in Ontario. Through Duke Energy Field Services (DEFS), its 50-50 joint venture with ConocoPhillips, GasCo also will be the largest producer of natural gas liquids in the United States, Duke said.
GasCo, the temporary name of the subsidiary, expects ongoing diluted earnings per share growth on average in the range of 5-7% annually over the next five years. With its remaining businesses, Duke expects to grow diluted ongoing earnings by an average of 4-6% annually.
“We’re well on our way to unlocking the true shareholder value of our corporation,” Duke CEO James E. Rogers said. “To our customers, this transition will be seamless. We will continue to provide safe, reliable and cost effective energy services. However, to our shareholders, this is an opportunity to be part of the creation of two dynamic companies. Today’s milestone moves us closer to achieving our goal of growing two corporations built upon sustainability and integrity.”
GasCo filed Form 10 documents with the Securities and Exchange Commission (SEC) on Thursday that provide specific details of the proposed separation of the company’s gas and electric businesses. Duke also filed a Form 8-K with the SEC that details summary financial information on GasCo and the businesses that will remain within Duke’s operations following the separation.
When the spin-off is completed, Duke shareholders will own two separate, publicly traded companies. Shareholders will continue to hold their shares of Duke, and they will receive shares of the spin-off’s stock at a distribution ratio to be determined in the next few months. Both companies’ shares are expected to be listed on the New York Stock Exchange, with GasCo applying for listing in the fourth quarter.
At the time of the separation, the sum of the two companies’ dividends is expected to be equal to the current Duke annual dividend of $1.28. On a hypothetical one-for-one distribution of stock, the initial dividend would be 84 cents/share for Duke and 44 cents/share for GasCo in 2007, Duke noted. Going forward, GasCo is targeting a payout ratio of 60%, while Duke anticipates a target payout ratio of 70-75%. Also with the gas separation, Duke Energy Canada’s exchangeable shares (exchangeable for Duke common shares) are expected to be reorganized to allow for equivalent participation in the separation.
Rogers will serve as chairman, CEO and president of Duke after the separation. The corporation will continue to be headquartered in Charlotte, NC. Fred J. Fowler, currently group executive and president of Duke Energy Gas, will serve as president and CEO of GasCo. GasCo will be headquartered in Houston, and it will primarily consist of Duke Energy Gas Transmission (DEGT) and Duke Energy Field Services (DEFS).
“As a pure-play, GasCo will be able to use the size and regional scale of our natural gas transmission assets to take advantage of numerous opportunities,” Fowler said. “We are poised to meet growing demand in existing markets, add infrastructure in new markets and provide high deliverability with our flexible and diverse gas storage assets. This separation gives us the ability to move quickly and decisively in the marketplace to take advantage of many existing opportunities. On Wall Street, analysts will know exactly who we are and what we do, which will allow them to value our stock accordingly.”
Duke’s remaining business units will create one of the largest electric utilities in the United States. It will consist of the U.S. Franchised Electric & Gas business unit (Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Ohio and Duke Energy Kentucky), Duke Energy’s international business unit with operations in Latin America, Duke Energy’s Commercial Power business unit, and real estate company Crescent Resources.
The separation is not subject to shareholder approval, but it is subject to SEC and other regulatory review. Duke said it also is seeking a private letter ruling from the Internal Revenue Service that the separation qualifies as a tax-free reorganization.
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