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Kaminsky's Call: The Real Deal Behind the Progress Energy, Duke Merger

I've often said that nine out of ten mergers create little to no value, but perhaps Monday's deal between Progress Energy and Duke Energy will be one of the few that do, and here's why.

Market pundits pointed to the fact that the merger would create the largest U.S. power company, with over 7 million customers. But what most people missed was that the real reason behind the deal had little to do with market share and everything to do with something we love to cover on The Strategy Session: the cost of capital.

On Monday's show, I asked Bill Johnson, who will take the helm of the combined company, if he expected to see a credit rating upgrade as a result of the deal.

Normally, this question would not be front and center on the minds of investors, but with such a capital-intensive business as utilities, the basis points saved on billions in borrowing will flow directly to the company's bottom line of the combined entity.

Mr. Johnson's response was surprisingly candid: he expects an upgrade within the next year.

Moreover, he added that with an improved balance sheet, the company will be able to borrow "at a very low cost."

For a business that relies heavily on the ability to access capital, this is huge, and something every investor MUST pay attention to. It was certainly something I watched when I managed billions at Neuberger Berman.

When companies combine, many focus on the so-called synergies that will somehow manifest themselves in higher stock prices. But while it may not seem sexy, getting a lower cost of capital, securing credit upgrades and spending less to improve your business is at the heart of creating shareholder value.

It's what drives stock prices in the long-term.

Deals aren't always about getting bigger, which is what many in the media would have you believe.

True value is about getting better, and it's something Duke and Progress Energy did yesterday


Watch Gary Kaminsky weekdays at Noon ET on CNBC's "The Strategy Session."

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Gary Kaminsky does not hold any equity positions.

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