Tuesday, January 25, 2011

Worried Retirees

My local paper, the News and Observer, published a letter from a worried retiree of Progress Energy.  For those not following our local news, Progress Energy (NYSE:PGN) is merging with Duke Energy (NYSE:DUK).  PGN is located here in Raleigh and so there are many folks in the area who have worked for the company and are now retirees.

The letter expressed concerns as to how the merger would affect the retirees dividend stream from her PGN stock, which was presumably bought as part of some company employee stock ownership plan.

For students of finance, and in particular corporate finance, see if you can spot the major misconceptions held by the letter writer.  For bonus points, advise the writer as to whether or not she might want to diversify her portfolio.

The link to the letter is here.

The text is here:

The Fortune 500 company was once CP&L, and then it became Progress Energy. Now that the company I loved is going to be Duke Energy, I wonder what is in store for the employees - especially for the retired employees.
When I worked at CP&L, the company valued its employees parallel to safety and the bottom line. This change is a major worry. How will Duke treat CP&L's vested retirement plan? What about dividends paid? Will they be paid at Duke's rate or Progress Energy's rate? Will dividends be increased from time to time as before?
Enhancing our stock value by 6.4 percent may be good news for some, but for us who reinvest dividends, the enhanced value is not exciting - we will be buying fewer shares.
I am in shock and saddened that "my company" is being sold. When I joined CP&L, the personnel representative told me if I worked hard and kept my nose clean, I could retire there. I wonder what he would say now.
The buyout, or merger, whichever it is, may be a sound business transaction, but retired employees, who are nostalgic, feel a great loss of connection and of pride, and we are concerned for our future financial security.
Retired CP&L 1994