Columbia Accepts Defeat After Dominion Ups Ante for CNG
Columbia Energy has accepted defeat in the three-month battle
with Dominion Resources for a merger with Consolidated Natural Gas.
Columbia officially withdrew its $6.7 billion offer late Tuesday
following a sweetened merger bid by Virginia Power parent Dominion
set at $6.4 billion and the CNG board's unanimous approval of a
revised agreement with Dominion.
"We want to put to rest any further speculation about Columbia's
intentions toward CNG," said Columbia CEO Oliver G. Richard III.
"We had a superior offer and are disappointed in the CNG board's
decision, but observe that our proposal resulted in CNG's
shareholders gaining a better offer from Dominion than that agreed
to by CNG and Dominion in February."
Dominion set its revised offer at $66.60/share, an improvement
compared to its previous bid which fluctuated with its share price.
Its original agreement was to convert each common share of CNG to
1.52 shares of Dominion stock, which fell in value following the
announced transaction in February.
At face value, the revised Dominion offer still falls short of
Columbia's by about $300 million, excluding Dominion's $2.58 per
share dividend and its tax-free offer. Some analysts, including
PaineWebber's Ronald J. Barone, still see the Columbia proposal as
superior from "both an economic and a strategic standpoint. The
combination of CNG and Columbia would truly represent and ideal
fit," Barone said.
CNG's board, however, clearly disagreed. "We believe that a
combination of CNG and Dominion best serves our shareholders
because it makes strategic sense and has a straightforward road map
to completion," said Chairman George A. Davidson, Jr. "Together, we
will have the scale, scope and skills to be successful in the
competitive energy marketplace."
CNG's board concluded the revised Dominion transaction was
better for CNG shareholders due to its certainty and timing, the
strategic benefits of a gas and electric combination, and the
upside potential to shareholders of an investment in the combined
CNG/Dominion. The board said it based its decision in part on a
review of the regulatory situation and on input from several
regulatory experts, including former public utility commissioners.
CNG and Dominion largely had completed all of their regulatory
filings for the merger even before Columbia's April bid. A
Hart-Scott-Rodino filing with the SEC was made on May 10, a FERC
filing is expected shortly and the transaction is expected to
close, at the latest, in early 2000. In contrast, a Columbia merger
was expected to take much longer, possibly until year end 2000.
"It was a foregone conclusion early on that Dominion would win
this one," according to Paul Messerschmidt with Energy Security
Analysis (ESAI). "The Columbia offer came too late in the game and
it was really not as attractive because of the timing and the
regulatory hurdles. I find it intriguing that when Dominion was
urged to raise its bid, it held firm for the most part. It was
confident it had the better offer."
In the end, Columbia's consolidation merger plan, which would
have created one of the largest gas utilities and independent
producers in the nation, was deemed inferior to Dominion's
electric-gas convergence transaction. CNG and Dominion will have an
energy portfolio of more than 20,000 MW of power generation, and
nearly 3 Tcfe of gas and oil reserves with production exceeding 300
Bcf annually. They will operate a major interstate gas pipeline,
the largest gas storage system in North America and will rank as
one of the largest independent producers. They will form one of the
nation's largest integrated energy companies, serving nearly 4
million retail customers in five states. Market capitalization of
the combined entity will be $25 billion-consisting of approximately
$14.4 billion in equity, $9.5 billion in debt and minority
interests, and $1.1 billion in preferred stock.
Despite the failed bid, Columbia vowed to continue growing its
regulated business and its unregulated energy services and
marketing arm, and plans to renew its search for a transaction that
will keep it among the leading energy companies.
"As our interest in CNG has demonstrated, obviously we are open
to attractive opportunities brought about by consolidation and
convergence in the energy industry," Richard said. "We have also
demonstrated that we are disciplined in our approach, and will only
consider those transactions that provide real value for our
shareholders, customers and employees. We will continue to look at
advantageous situations that fit our growth strategies and