Capital Markets

Duke Energy Plans $2.5 Billion Buyback

At least one credit analyst thinks the share-repurchase plan will weaken the company's financial profile, however.
Lisa YoonFebruary 28, 2005

Flush with $1.85 billion in extra cash at the end of 2004, Duke Energy Corp. announced it would use the money towards a $2.5-billion stock repurchase.

The rest of the buyback will be financed by restructuring deals expected to generate about $2.3 billion, according to a MarketWatch report.

The Charlotte, North Carolina-based energy company plans to sell about 20 percent of its stake in Duke Energy Field Services, a joint venture with ConocoPhillips. That would reduce Duke’s stake in Duke Energy Field Services to 50 percent from 69.7 percent. The transaction will bring in roughly $1.1 billion in cash and assets from ConocoPhillips, according to the online news service.

Duke’s board also agreed to the sale by Duke Energy Field Services of Texas Eastern Products Pipeline Co., to EPCO Inc., a private firm, generating another $1.1 billion, according to MarketWatch. Further, EPCO agreed to buy 2.5 million Teppco limited-partner units from Duke Energy for about $100 million.

Some experts question whether a stock buyback is the best use of the transaction proceeds and year-end cash. Duke, rated by Standard & Poors as BBB, is barely investment grade. Although it would benefit shareholders, a stock repurchase, wouldn’t necessarily strengthen Duke’s financial shape in the way paying down debt or keeping the cash on hand would, for example.

At least one rating-agency representative was skeptical of the buyback. “Although Duke Energy’s stock repurchase plan will be funded largely with the proceeds of the asset sales,” Standard & Poor’s credit analyst Dimitri Nikas was quoted by MarketWatch as saying, “we are concerned that the transaction will lead to a modestly weaker financial profile than initially expected.”

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