Duke Energy
Duke Energy, a large utilities company was faced with a difficult decision as it was weighing its strategic options as it looked to expand the reach of the company. In 2011, the announcement to acquire Progress Energy was initially viewed as a strong move to place the combined organization in a strong financial setting to expand by completing a nuclear power plant. Leading up to the acquisition, the competitive setting for utility companies was fierce, with utility company mergers and acquisitions counting for over 20% of all the activity. The main contributing factor was the falling costs of energy and the requirement of the energy companies to reduce costs by increasing customer base. In an effort to increase the shareholder value, the deal was struck, but still had to clear the energy commissions.
In 2012, Duke Energy attempted to back out of the deal after the company’s chief was let go by the board. The commissions were feeling there may have been alternative motives behind the merger once the decision was made to remove the chief. While the vote was initially seen as a potentially hostile move, upon digging deeper it was the correct decision by the board due to the requirement of needing a strong leader.
Overall the move to acquire the company was a good move based on the BCG analysis. The market analysis for growth showed it to be low, but the market share gained by acquiring Progress Energy gave Duke a significant bump. This would end up being a cash cow for Duke Energy and would hopefully fund the expansion projects it had in the hopper.
From Porter’s 3 tests, we can also conclude that this acquisition was a strong and smart move. The first test, the attractiveness test, is pretty clear cut because Duke knows the industry is attractive already. There is room for growth through acquisition and an opportunity to lower costs