Duke Energy (NYSE:DUK), Progress (NYSE:PGN) Not Without Risks

The announced stock-for-stock merger between Duke Energy (NYSE:DUK) and Progress (NYSE:PGN), at first glance, doesn't impress FBR Capital, and barring synergies, could be dilutive for Duke, and wouldn't be a good deal for them.

FBR says, "This morning, Duke Energy (DUK-Underperform) and Progress Energy (PGN-Market Perform) announced that they will be merging in a stock-for-stock deal. If approved, this merger would create the largest electric utility in the U.S. with a $37 billion market cap and a $40 billion rate base. The deal terms and financial implications are outlined below. In our view, one of the big challenges faced by DUK on a standalone basis is its lack of earnings growth. This transaction could potentially change this outlook if significant synergies are realized.

"According to the press release, Duke expects the deal to be accretive in the first year after close, which is slated for year-end 2011. Excluding synergies, this deal would be modestly dilutive and would not seem justifiable to us. Thus, our initial take is that this merger brings some strategic benefits to DUK that until now faced rather dim prospects, and lowers the share count to boot (better optics). From a PGN standpoint, the offer is a very handsome one and values the company at 14.8x consensus 2011 earnings, which is almost where Southern Company (NYSE: SO) is trading."

Progress Energy closed Monday at $43.99. down $0.73, or 1.63 percent. Duke Energy closed at $17.58, down $0.21, or 1.18 percent.