Lackluster interest in Duke post spin-off bodes ill for the “pure play” electric utility.
It was the most anticipated energy deal in the New Year, but not for the usual reasons. The spin-off of Duke Energy’s natural-gas business into a stand-alone company, Spectra Energy Inc., wasn’t unusually large, did not involve outsized personalities, and certainly did not involve a new strategy.
No, interest peaked because the transaction was to have marked the vindication of the so-called “pure play” electric strategy—the idea that an electric utility might maximize shareholder value by segregating returns associated with various asset classes. The deal also has captured attention because the spin-off represented a divestiture strategy that until now hasn’t been universally embraced, with gas assets still seen by some utilities as part of core operations.
The Spectra Energy spin-off (along with the Cinergy merger the year before) marks the reversal of the so-called Duke, PanEnergy transformational “convergence” merger that was to have taken advantage of opportunities in restructured electric and gas markets. This is the belief of Duke Energy CFO David L. Hauser and the observation of the Duke Energy Employee Advocate, an unaffiliated employee Web site.
For those of you who may not remember, a $7.7 billion transaction in 1997 united Duke Power’s electric business to PanEnergy’s natural-gas business—the third largest natural-gas company in North America at the time.