Columbia Rejects NiSource Again, Ponders Options
In rejecting NiSource's revised tender offer of $6.1 billion ($74/share)
last week, Columbia Energy Group's board announced that it authorized management
to begin considering all options, including a sale of all or part of the
company to a third party, possibly even NiSource.
The announcement made it appear as if Columbia finally is willing to
sit down and negotiate a deal with NiSource. However, in a letter to NiSource
Chairman Gary Neale, Columbia CEO Oliver G. (Rick) Richard made clear that
Columbia still believes a NiSource-Columbia combination would be a bad
Richard said the revised offer, which represents an increase from the
prior offer of $68/share, was determined to be inadequate based on written
opinions from Morgan Stanley Dean Witter and Salomon Smith Barney Inc.
(see NGI, Oct. 25). "In addition to
the financial inadequacy of the offer, the board continues to be concerned
about the significant conditions and regulatory hurdles associated with
the NiSource proposal," the company said in a statement. It urged
shareholders to hold onto their shares until a more favorable alternative
Richard told Neale that Columbia's board authorized management to "explore
and evaluate a number of strategic alternatives to generate shareholder
value greater than that which Columbia's business plan or the revise offer
"As part of that process," he said, "we will initiate
discussions with third parties --- including NiSource, if it is interested
--- regarding possible transactions designed to significantly enhance value
for our shareholders. We intend to consider a variety of strategic alternatives,
including an extraordinary transaction, such as a merger, reorganization
or the disposition by Columbia of a material amount of assets. Of course,
there can be no assurance that this process will result in any such transaction.
"We continue to have serious questions about the strategic and
financial merits of a combination of our two companies, as well as about
NiSource's ability to satisfy the conditions of its financing commitments
and successfully complete a transaction of the magnitude required. Nonetheless,
be assured that we will attempt to accommodate NiSource's participation
in this process."
A NiSource spokeswoman said the company had no formal response. Although
it was disappointed in Columbia's rejection of the revised offer, it views
the small opening for negotiations as "positive." She said at
this time, however, NiSource still intends to keep its tender offer on
the table for Columbia shareholders until the Nov. 12 deadline.
The move, which has been expected for some time, was greeted favorably
by Wall Street. NiSource shares gained 38 cents Monday after the announcement
to close the day at $20.31/share. Columbia shares gained $2.50 to close
Analysts are completing their short lists of companies likely to jump
into the bidding. Most expect a regional electric utility with deep pockets
to sweep Columbia off its feet. PaineWebber electric utility analyst Barry
Abramson said his list includes the Consolidated Natural-Dominion Energy
combination, Southern Company, FirstEnergy, GPU, Unicom-Peco and Reliant
He said he expects CNG-Dominion would be very interested in the local
distribution assets, while Southern would want to grab Columbia's transmission
and storage but would leave behind the distribution. Because the Unicom-Peco
merger-of-equals isn't stretching the financial resources of either company,
they would be likely candidates. GPU already has indicated it is prepared
to do whatever it takes to increase shareholder value. And Reliant has
been disappointed with its South American investments and might be interested
in finally tapping into some prime Northeast market access, said Abramson.
Other potential suitors previously mentioned include Cinergy, KeySpan and
Paris-based Vivendi, which is in the process of attempting to sell its
share of Sithe Energies.