Pressure is building on Duke Energy to explain why it ousted Bill Johnson as CEO this week, as former Progress Energy board members break their silence and express outrage at what they term a calculated deception.
At the same time, the N.C. Utilities Commission which last week approved the merger between Charlotte-based Duke and Raleigh-based Progress with the understanding that Johnson would be Dukes CEO is internally deliberating whether to investigate whether Duke officials lied about their intentions.
Meanwhile, a leading Wall Street credit rating firm put Duke on a watch list for a potential credit downgrade in the wake of Johnsons exit. Johnsons abrupt resignation, announced Tuesday, raises questions about Dukes internal stability, planning and management, Standard & Poors Financial Services said Wednesday. Many former Progress executives were recruited by Johnson, with a number moving to Charlotte this week for their new jobs.
But it was the former Progress Energy board members who were the most vocal in their outrage.
Frankly, I felt misled, said Alfred Tollison Jr., who lives in Georgia and served on the Progress board until the completion of the merger. Just from circumstantial evidence you would have to think it didnt happen overnight, that there was a lot of forethought given to it.
Another former Progress board member, John Mullin III of Virginia, sent a letter to the Wall Street Journal Thursday, stating: I do not believe that a single director of Progress would have voted for this transaction as structured with the knowledge that the CEO of Duke, Jim Rogers, would remain as the CEO of the combined company.
In the letter, which he shared with The (Raleigh) News & Observer, Mullin wrote: In my opinion this is the most blatant example of corporate deceit that I have witnessed during a long career on Wall Street and as a director of ten publicly traded companies and as a former Trustee of Putnams numerous mutual funds.
The recent, rapid developments pose new challenges to Dukes leadership as the company moves forward with its merger with Progress, a deal that created the nations largest electric utility.
Duke spokesman Tom Williams said, We will be working with S&P in the coming weeks to resolve their credit watch listing as expeditiously as possible.
Credit ratings are critical to utilities, which depend on capital markets to finance power plants and other infrastructure projects that can cost billions of dollars. Lowered credit ratings could result in higher interest rates and millions in added costs.
Moodys Investor Services, however, affirmed its ratings and stable outlooks for Duke and Progress, citing their strong financial profiles and merger benefits.
But Johnsons departure, Moodys added, creates uncertainty over the companys long-term leadership and could also lead to some additional turnover in the newly-constituted companys senior management team.
CEO for about 20 minutes
New details emerged Thursday revealing that Johnson was asked to resign Monday afternoon, shortly after the merger closed that day at 4:02 p.m., suggesting to some that his ouster was choreographed in advance. The merger had received final approval from South Carolina regulators earlier on Monday.
Johnson signed his employment contract with Duke on June 27, days before the merger closed. He was CEO of the combined company for about 20 minutes, Mullin said. After the merger closed, Dukes board went into executive session and voted to request Johnsons resignation, Mullin wrote.
When informed of the boards surprise decision, but before he took any action, Johnson called Mullin on the phone, making Mullin one of the first outsiders to learn that something was amiss, Mullin said in an interview Thursday.
Mullin added that there is no question that Johnson was asked to leave.
By resigning as opposed to getting fired, Johnson was entitled to collect a $10.3 million severance. According to an 8K filing Duke made with the Securities and Exchange Commission on Tuesday, Johnson is entitled to severance benefits if he resigns for good reason. The filing provides the definitions of good reason as any breach of contract by Duke, or if Duke were to unilaterally strip Johnson of his title, authority, duties or responsibilities.
Company executives were notified Monday evening and the bombshell spread quickly into the night. The next day, Tuesday, before stock markets opened for trading, Duke announced Johnson resigned by mutual agreement.
N.C. Utilities Commissions role
The N.C. Utilities Commission, which had approved the deal last week, began trying to determine if it had any options. Commissioner Bryan Beatty on Thursday said the commission has the authority to review its decision, and that one option would be to convene a public hearing, call Duke officials to testify and question them about the move.
I think its important to make sure there wasnt any intent to mislead or to withhold information from the commission that perhaps we should have been made aware of, Beatty said.
Beatty said its unclear what actions the commission could take if it concludes that deception took place.
The financial world also continued to have questions on Thursday. Wells Fargo Securities reiterated its market perform rating for Duke but did not let the moment pass without commentary.
Frankly, we dont know quite what to make of the upper-management shakeup other than to perhaps suggest that its not the ideal way to begin the marriage, analyst Neil Kalton wrote in a research note. Will this translate into cultural issues that will make it more challenging to achieve projected cost savings and synergies? Charlotte Observer staff writer Bruce Henderson contributed.