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Duke's Risky Spin

Lackluster interest in Duke post spin-off bodes ill for the “pure play” electric utility.

Fortnightly Magazine - February 2007

a stand-alone company, while the average parent company outperformed by 14.4 percent in the 12 months preceding the effective date of the spinoff. But the report notes that spin-offs outperformed their sector during the first two years as a stand-alone company in every sector except energy.

The energy sector has had a mixed track record with spun-off companies. Who can forget the very public bankruptcies of Southern’s Mirant and Xcel Energy’s NRG Energy? But all indications are that the Spectra Energy spinoff is receiving a warm reception on Wall Street, and there already are rumors of buyout offers.

Duke’s Hauser explained that because Duke’s intent was to optimize shareholder value, Duke Energy shareholders were given shares in Spectra Energy. “All we did was take what was one piece of paper, and now the shareholders have two pieces of paper. The shareholders still own both companies to the degree they elect to keep both companies.”

Victory in the deal would be declared if the value of both companies goes up, he says. “But they don’t necessarily have to go up. You could have one stay pretty flat and the other one could go up dramatically, and you would still have success.”

For Duke’s sake, let’s hope the market eventually sees its parts as more like a Mercedes than a Yugo. But utility executives contemplating such strategies should be heedful of being taken for a ride.