[cdn-nucl-l] Duke Engineering sold to Framatome

["Adam McLean" <adam.mclean@utoronto.ca>]

Posted in the Charlotte Business Journal on July 19, 2002 and at:
http://www.bizjournals.com/charlotte/stories/2002/07/22/focus1.html
Yet another European investment in the North American nuclear industry.

Adam

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Betting on nuclear power
Barbara Thiede   

After three months of negotiation, Framatome Advanced Nuclear Power Inc.
bought the largest concentration of engineering talent in Charlotte --
Duke Engineering & Services Inc. 

The subsidiary of Duke Energy Corp. sold for $84 million in a deal that
closed April 30; it posted revenue of more than $280 million in 2001.
The purchase includes three business groups of Duke Engineering &
Services -- nuclear, federal and energy and environmental; some other
parts of the company stayed with Duke Energy. 

The Duke unit has long enjoyed the reputation of being a leading
provider of engineering and technical services to private and public
energy producers, especially for nuclear power plants. Renamed Framatome
ANP DE&S, it makes an easy fit for Framatome ANP, a Paris-based company
whose bread and butter is engineering services for nuclear plants across
the globe. Framatome has a work force of 14,000 and posts annual revenue
of roughly $2.5 billion; its U.S. headquarters is in Lynchburg, Va. 

Why did Duke dispose of DE&S? Bryant Kinney, Duke vice president of
public affairs, says the unit catered to a specialty market and needed
to be part of a company that focuses on its field of expertise. "In
general, the engineering business was not something we were going to
grow. DE&S was either going to stay where it was or decrease, or we
could sell it to someone who could take that expertise and build on it."


DE&S wasn't "a core piece" of Duke Energy's business, says T.M. Winter,
vice president and utility analyst with A.G. Edwards & Sons, the stock
brokerage firm. "It was such a small piece of Duke, well under the radar
screen." Duke Energy had revenue of $59 billion last year. 

Winter says DE&S also had consistently been a drag on earnings for the
company. Given that the market for building nuclear power plants is
expected to slow dramatically after this summer, it made little sense
for Duke Energy to hold onto it, he says. 

Brian Youngberg, analyst with Edward D. Jones & Co., agrees. "Relative
to Duke as a whole, DE&S was not a big piece of the pie. Duke Energy is
trying to focus on their core regulated businesses and their competitive
wholesale energy businesses. In this case, this was a non-core business
that didn't supply significant scale." Youngberg says DE&S offers
Framatome exactly what that company needed -- the engineering expertise
that can complement its work as a technology provider. 

Framatome's president and executive officer, Thomas Christopher,
confirms the assessment. The major growth market for commercial nuclear
plants lies in making capital improvements. "This was an area we needed
to have strengthened. DE&S is the leader in that field." DE&S brings
highly qualified engineering experience to Framatome, which had
functioned primarily as an equipment and fuel supplier. "We were
engineering on one end, and they were engineering on the other,"
Christopher says. 

With their separate specialties, the two companies had often worked on
the same projects. 

The change in ownership has gone well, Christopher adds. "I've been
involved in a number of acquisitions, and the remarkable thing about
this was the morality with which Duke approached this. There was a great
sense of honor and fairness." 

Bobby Abrahms, former vice president of the unit under Duke Energy and
now president of Framatome ANP DE&S Inc., acknowledges that employees
were nervous at the beginning. But benefits and existing policies were
not fundamentally altered by the sale. Abrahms says DE&S thrives on the
skills of its employees, and "when that's your asset, you need to have a
work force that is very skilled and motivated. We knew everyone was
skilled, but it was important to keep them motivated." 

Abrahms says no DE&S employee was laid off because of the sale, and
given that the unit employs about 1,200, he considers that a significant
achievement. Growth, not cutbacks, he says, is in the group's future.
Framatome had already garnered work that required DE&S expertise, and
DE&S had a full and profitable business for 2002. "We need more people,"
Abrahms says. "We have to add people." 

There were some reductions in overhead made in DE&S, Christopher says,
but those cuts were planned for the unit before it was sold. Dealing
with the inevitable economies of scale and overhead reductions without
incurring layoffs was possible because some job openings materialized in
other Duke Energy units. Christopher says overhead reductions amounted
to "many millions of dollars." 

The bulk of the employees are based in the Wachovia Center uptown.
Framatome officials say they'll remain in the building. 

Framatome expects DE&S to grow steadily. Christopher says a minimum of
30 nuclear plants will need to renew their operating permits by 2005.
There's ample opportunity to garner business in retrofitting nuclear
facilities, he says. Framatome also expects to benefit from the
experience recently gained by refitting nuclear facilities in Germany
and France. 

Despite the fact that Sept. 11 has made the potential vulnerability of
nuclear plants to terrorist attack a topic of some nervous conversation,
Framatome executives believe that new nuclear facilities will be an
integral part of the country's future energy generation. President Bush
is among the leading advocates of nuclear power. 

"From a national point of view," says Abrahms, "nuclear engineering is a
key to the future of the country's energy demands. We now have an
administration that has said `nuclear' out loud again." 

"Framatome is poised to be a player in new nuclear work when it comes
about in this country" and having DE&S improves Framatome's chances to
do design work for the nuclear power plants of the future, Christopher
says. 

"Duke can focus their capital on their growth businesses, and hopefully
Framatome can ex-tract more value from DE&S," says Edward D. Jones'
Youngberg. 

Barbara Thiede is a Concord-based free-lance writer who can be reached
at thiede@-charlotte.infi.net.