Triangle could be in line for losses

Staff WriterJanuary 10, 2011 

  • "Without knowing the terms of the transaction, it's hard to see what the impact would be on Raleigh. ... It is never a good time to potentially have a major company be based elsewhere."

    Raleigh Mayor Charles Meeker

    "Progress Energy has made a tremendous impact on this community, both in terms of charitable giving and on the redevelopment of downtown under the leadership of [former CEO] Bill Cavanaugh and then [current CEO] Bill Johnson. Having a Fortune 500 headquarters is a major asset to this community. The benefit to customers would need to be carefully reviewed and hopefully the deal would have a positive impact on rates."

    Smedes York, Raleigh real estate developer and former mayor of Raleigh

    "Financially they'd be stronger to try to build nuclear plants but it doesn't mean they could complete them. There's still a heavy risk of cost overruns and project abandonment. It changes their capital balance but it doesn't change any of the other problems that have arisen during the nuclear revival, including design problems."

    Jim Warren, executive director, N.C. Waste Awareness & Reduction Network in Durham

    "What the commission would look for is whether the customers of the two companies would be better off after the merger."

    Edward Finley Jr., chairman of the N.C. Utilities Commission.

    "I'd rather it not happen, and I'm sure the city leaders would rather it not happen, but I don't see it by any stretch as a major blow to the economy of the Triangle. ... Effectively all the state's electricity [would be provided] by one firm. Presumably, this is going to make that one firm more efficient, perhaps leading to lower costs in the future. And, of course, the utility market is not a free market. There's no head-to-head competition ... To that extent, it's not like two banks merging."

    Mike Walden, N.C. State University economist

    "Certainly you'd like to have a Fortune 500 company [headquartered] in your city. It brings prestige. It would have an adverse effect on the law firms and accounting firms and other professional services firms that work for ProgressEnergy."

    Jeff Barber, former head of the Raleigh office of accounting firm PriceWaterhouseCoopers, now a managing director in charge of the Triangle operations of Fennebresque & Co., a Charlotte-based investment bank

    "The most important thing about having a headquarters in your community is that the top leadership actually lives in your community. They are here and engaged, not only in corporate activities but civic activities."

    Ken Atkins, executivedirector of Wake County Economic Development

  • "Without knowing the terms of the transaction, it's hard to see what the impact would be on Raleigh. ... It is never a good time to potentially have a major company be based elsewhere."

    Raleigh Mayor Charles Meeker

    "Progress Energy has made a tremendous impact on this community, both in terms of charitable giving and on the redevelopment of downtown under the leadership of [former CEO] Bill Cavanaugh and then [current CEO] Bill Johnson. Having a Fortune 500 headquarters is a major asset to this community. The benefit to customers would need to be carefully reviewed, and hopefully, the deal would have a positive impact on rates."

    Smedes York, Raleigh real estate developer and former mayor of Raleigh

    "Financially they'd be stronger to try to build nuclear plants, but it doesn't mean they could complete them. There's still a heavy risk of cost overruns and project abandonment. It changes their capital balance, but it doesn't change any of the other problems that have arisen during the nuclear revival, including design problems."

    Jim Warren, executive director, N.C. Waste Awareness & Reduction Network in Durham

    "What the commission would look for is whether the customers of the two companies would be better off after the merger."

    Edward Finley Jr., chairman of the N.C. Utilities Commission.

    "I'd rather it not happen, and I'm sure the city leaders would rather it not happen, but I don't see it by any stretch as a major blow to the economy of the Triangle. ... Effectively all the state's electricity [would be provided] by one firm. Presumably, this is going to make that one firm more efficient, perhaps leading to lower costs in the future. And, of course, the utility market is not a free market. There's no head-to-head competition. ... To that extent, it's not like two banks merging."

    Mike Walden, N.C. State University economist

    "Certainly you'd like to have a Fortune 500 company [headquartered] in your city. It brings prestige. It would have an adverse effect on the law firms and accounting firms and other professional services firms that work for ProgressEnergy."

    Jeff Barber, former head of the Raleigh office of accounting firm PriceWaterhouseCoopers, now a managing director in charge of the Triangle operations of Fennebresque & Co., a Charlotte-based investment bank

    "The most important thing about having a headquarters in your community is that the top leadership actually lives in your community. They are here and engaged, not only in corporate activities but civic activities."

    Ken Atkins, executivedirector of Wake County Economic Development

The acquisition of Progress Energy by its Charlotte-based counterpart, Duke Energy, would be a blow to Raleigh's economy and would rob thecity of the prestige that comes with being home to a Fortune 500 company.

Although many details of the anticipated agreement are unknown, Charlotte would become the home of the combined company - a move that would cost Raleigh a valuable corporate headquarters. That probably would mean that most of the top decision-makers would work out of Charlotte and that the bulk of the work performed for Progress Energy by local law and accounting firms would migrate across the state as well.

The acquisition would also raise questions about whether the utility's largess for local charitable and arts groups would wane. Progress Energy's philanthropic foundation supports K-12 education as well as workforce development and the arts. The city's largest and most prestigious indoor performance space is the Progress Energy Center for the Performing Arts.

"Progress Energy has made a tremendous impact on this community, both in terms of charitable giving and on the redevelopment of downtown under the leadership of [former CEO] Bill Cavanaugh and then [current CEO] Bill Johnson," said Smedes York, a real-estate developer and a former mayor of Raleigh.

All these issues, of course, would come on top of the inevitable job losses at one of the Triangle's largest employers.

A major rationale in such deals is that efficiencies can be wrung out of the combined company by "eliminating redundancies," which is corporate-speak for layoffs.

Some local officials were reluctant to address the implications of a merger that has inspired numerous questions that Progress and Duke aren't answering.

But Harvey Schmitt, president and CEO of the Greater Raleigh Chamber of Commerce, did not dismiss the possible consequences. "Obviously a merger would have an impact as it would reduce our community's claim to being a home to a Fortune 250 company," he said. "And since we are interested in growing additional headquarters here, that affects our bragging rights."

When the chamber tries to recruit other companies to relocate their headquarters to Raleigh, it likes to cite Progress Energy as a prime example of a successful, giant company that's based here.

"Headquarters do tend to cluster," Schmitt said.

The specter of losing the Progress Energy headquarters comes as another high-profile company based in Raleigh, Linux software company Red Hat, has been scouting in Durham, Atlanta and Texas for a possible move.

A minor setback

But at least one economist played down the headquarters loss.

Mike Walden, an economist at N.C. State University, said the Triangle's reputation in the business world doesn't hinge on being a haven for corporate headquarters.Many of the region's largest employers, such as tech giants IBM and Cisco Systems, are based elsewhere.

"We're known for tech and higher education and for the Research Triangle Park," Walden said.

Consequently, although the acquisition of Progress Energy would be a setback for the local economy, Walden would view it as a minor one. "The dial moves back a little," he said.

That's the view from 10,000 feet. The perspective likely would be much different from the corner offices at the various law, accounting and other professional services firms that work for Progress.

Those firms could see a surge in business in the short-term as they work on the transaction, but that revenue stream could quickly fall off a cliff, said Jeff Barber, former head of the Raleigh office of accounting firm PriceWaterhouseCoopers. He's now a managing director in charge of the Triangle operations of Fennebresque & Co., a Charlotte investment bank.

Barber said that in 2000 when Glaxo Wellcome and SmithKline Beecham merged to form GlaxoSmithKline, PWC was working for both firms. But the work done by the accounting firm's Raleigh office quickly shifted to Philadelphia, which had been the U.S. headquarters for SmithKline.

Moreover, the amount of work that PWC did for the combined firm was less than the work it previously did for the firms separately.

"It's not two audits now, it's one bigger audit," Barber said.

However, Barber sees losing Progress Energy's headquarters as being less harmful than if Red Hat decides to move its headquarters elsewhere. The reason: the Progress Energy scenario would be a side-effect of a pure business decision, whereas a Red Hat move could be interpreted as a knock on Raleigh's business climate.

A drop in gifts?

Although a shift in a corporate headquarters can be accompanied by a drop-off in corporate philanthropy, Schmitt doesn't see that happening this time.

Unlike most businesses, a utility's success is inextricably linked with the economies of the regions it serves, Schmitt said.

"It wants to contribute to those things that make the community special because it helps them business-wise," he said. "I don't sense you would see any drop-off [in local philanthropy] because the utility's interests would not change."

Staff writer Alan Wolf contributed to this story.

david.ranii@newsobserver.com or 919-829-4877

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