DUK: Control of SE Starts with Closing of PNG acquisition; Expect Far More on the Gas Side Including Another Acquisition within 2-3 Years

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Market Price (10/3/2016): $79.09/share; ST-Target: $100/share; NIV: $110/share

  • DUK announced that it closed its acquisition of Piedmont Natural Gas (PNG) as of October 3, 2016
    • PNG is inconsequential as a stand-alone business to DUK, so we believe that there is a beginning game, middle game and end game to come that starts with the close of the PNG acquisition; i.e., acquisition of PNG was just a pre-season game, in our opinion.
    • Obviously, the next step for DUK regarding its gas business is to integrate PNG into the rest of DUK, but more importantly …
    • … DUK needs to not only integrate PNG, but it needs to demonstrate to investors that DUK can add to shareholder value through its strategic move into the gas business; we believe that DUK will accomplish this by engaging in new gas projects, drawing out synergies – albeit small – from the acquisition, managing its regulatory framework, and by delivering additional value to its customers; we believe that this is just the beginning.
  • The middle game for DUK, in our opinion, is the acquisition of a major regulated business, one that has a very large component of regulated gas businesses, within 2-3 year
  • In our opinion, the endgame for DUK is the fight for control of the regulated businesses of the southeast

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