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Columbia Draws Third-Party Interest

Columbia Draws Third-Party Interest

Against the backdrop of NiSource Inc.'s hostile takeover bid for Columbia Energy Group, a number of U.S. and foreign electric companies are emerging as potential third-party suitors for the diversified energy concern.

The most prominent foreign suitor being mentioned is Paris-based Vivendi, whose U.S. assets include Sithe Energies Inc., a major independent power producer. In the U.S., the electric companies that are said to be closely eyeing Columbia's assets are Unicom Corp., parent of ComEd; Cinergy Corp., which has the 12th largest investor-owned utility system in the nation; and FirstEnergy Corp., whose utilities serve Ohio, Indiana and Kentucky. Even KeySpan Energy, parent of Brooklyn Union Gas, was reported to be "very interested" in the company. It's not clear whether the potential suitors being rumored would be hostile or friendly.

Meanwhile, NiSource, which bid $68/share ($5.7 million) for Columbia, said it was "encouraged with the response" of Columbia shareholders to its tender offer so far. NiSource expects to receive about 25-30% of the shares tendered by next week, but it has been promised "well in excess" of that amount (above 50%), said NiSource spokeswoman Maria Hibbs. "They're still in the hunt obviously," remarked Donato Eassey, first vice president at Merrill Lynch. He believes, however, NiSource will have to "up the ante"-to at least $73/share-to capture the required number of Columbia shares, which he estimated at about 85%.

Some industry analysts dismissed Vivendi as a viable contender, but Eassey didn't think the French company should be ruled out. "There is no doubt that the foreign operators would love to own the assets of a company like Columbia...There's an opportunity, I think, for these foreign companies to continue their dominance in terms of size by gaining access in the U.S. We've seen some on the West Coast, and we're likely to see more," he said. And, "there's probably some argument that [Columbia Chairman Oliver "Rick" Richard] would love to be owned by a foreign company versus one that's stationed here in the U.S."

But Edward Tirello, a utility analyst for Deutsche Banc Alex. Brown, rejected the possibility of a Vivendi-Columbia match. "I find that hard to believe. Vivendi's an infrastructure company, but mainly in water. It has nothing to do with gas. I would be shocked." Vivendi would have to bid $75-$80/share to "steal this company because they have no experience in this area."

"I expect one of the three big electric companies [Unicom, Cinergy or FirstEnergy] to do something," Tirello said. He doesn't view KeySpan Energy as a serious suitor. "...I'm sure they're looking. You can't count anyone out. But having said all that, I really think [Columbia's] out of their league."

Eassey said he could "speculate until the cows come home" about which electric utilities are interested in Columbia. "Suffice it to say, there isn't anyone on the electric side that wouldn't love to own Richard's assets." But if they're at all serious about out-bidding NiSource, Eassey noted the companies better move quickly. "I would think that if anybody's going to do something they'd want to do it soon knowing that NiSource already has [close to] 30% of the shares tendered."

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