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The Duke Energy Corp. merger with Canada’s Westcoast Energy Inc. is expected to get a second request from the Federal Trade Commission Friday. But risk arbitrageurs expect the antitrust review to be relatively short, particularly compared with El Paso Energy Corp.’s acquisition of Coastal Corp., which was in a second request at the FTC for just less than a year. Like the Coastal-El Paso antitrust review, arbitrageurs expect the Westcoast-Duke review to focus on the combined companies’ control of gas pipeline capacity in certain markets. But unlike the consent decree for the Coastal deal, which was complex and required several divestitures, the Westcoast merger review should be fairly straightforward. One point of concern is the Boston area, according to a report from Bear, Stearns & Co.’s arbitrage department. Duke and Westcoast both own 37.5 percent of the Maritimes Pipeline, which runs from Canada into the Boston area. Duke could be required to divest the Westcoast stake depending on the relative degrees of control the companies exercise on Maritimes as well as potential competition from other pipelines, Bear notes. Antitrust reviews of pipelines can be rigorous because the U.S. government considers the plans companies have to build pipelines as well as existing assets, an arbitrageur said. So plans that either company had prior to the merger could also affect the review, he said. Westcoast is considered a potential competitor to Charlotte, N.C.-based Duke in the New York market. But an argument could be made that no divestitures should be required for the Westcoast-Duke deal, arbitrageurs said. And the companies have few retail assets, which is a plus for a quick review, one arbitrageur said. Deals that have taken a long time in the FTC have often involved retail issues, he said. With the deal, Duke acquires Westcoast’s pipeline in British Columbia that ends in California where Duke has generation assets. That could pose vertical integration issues in California, where energy deals have undergone intense scrutiny. But vertical issues are not onerous in pipeline deals, an arbitrageur argued, since it is relatively easy to sell off a junction to ensure competition. Duke is an experienced acquirer and should be able to close the deal during the first quarter of 2002, arbitrageurs said. And Duke is on track with its filings, an arbitrageur said. In the end, the final hurdle for the deal may not be the FTC, but — because Westcoast is a Canadian company — the Investment Canada review, the arbitrageur said. Some cross-border energy deals have been closely vetted by government of the target company, he said. Duke was expected to make that filing on Nov. 1, the arbitrageur said. Duke did not return a call. Copyright (c)2001 TDD, LLC. All rights reserved.

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