Determined to fight to the end, NiSource took its $68/shareoffer ($5.6 billion) directly to Columbia Energy Group shareholderson Friday. It also filed litigation against Columbia and itsdirectors in the Delaware Chancery Court in an attempt to gain anopportunity to nominate a director to fill a vacant seat onColumbia’s board.

The seat was vacated in May when one of Columbia’s directorsretired, but Columbia failed to call for a shareholder vote on areplacement at its annual meeting last month, NiSource said.NiSource Chairman Gary Neale said his company will attempt tosecure all 83 million outstanding shares of Columbia common stockand intends to nominate “a slate of nominees for election” toColumbia’s board at its next annual meeting.

“In the meantime, we intend to nominate an independent candidatefor election to your board of directors to fill the fifth Class IIIdirectorship required under your certificate of incorporation.. Weregret that we have to resort to these actions,” Neale added. “Wehave made it clear that we intend to pursue this transaction to itsend…..”

Columbia CEO Oliver G (Rick) Richard III rejected NiSource’sovertures earlier this month, saying Columbia is “not for sale andis not interested in any merger transaction in which anothercompany acquires control of Columbia.”

In a letter to Richard this week, Neale said Columbia’sshareholders “have lost faith in your board’s willingness to act intheir best interests.” NiSource claims shareholders representing45% of Columbia’s outstanding shares have “expressed support” forits proposal.

NiSource’s strategy is to create a “natural gas distributioncorridor” between Chicago and New England and between the GulfCoast region and the Northeast. NiSource closed on a $780 millionacquisition of Massachusetts-based Bay State Gas Co. in Februaryand in April completed a $150 million purchase of TPC Corp., whichowns a network of high-deliverability salt cavern storagefacilities in the eastern U.S.

A combination with Columbia would more than double the size ofMerrillville, IN-based NiSource, creating a company with a marketcapitalization of $8.3 billion. It would be one of the largestenergy distribution companies in the country with nearly fourmillion electric, gas and propane distribution customers, 19,000miles of pipelines connecting the Texas Gulf Coast and the Atlanticcoast, 700 Bcf of total storage capacity, and 800 Bcf of gasreserves.

Many observers and analysts that have spoken with NGI like thestrategy behind the transaction but most also believe NiSource’s$68/share offer is too low compared to what Columbia is worth.Merrill Lynch’s Donato Eassey and Donaldson, Lufkin &Jenrette’s Curt Launer, both veteran energy analysts, said an offerin the low- to mid-$70s/share would be more in line with Columbia’sworth. Both also expect other companies to enter the bidding,although so far that has not happened.

Neale reiterated last week that NiSource is prepared to increaseits cash offer if the Columbia board “agrees to cooperate with usand negotiate a definitive merger agreement.

“We are spending valuable resources pursuing this transactionwithout your cooperation; resources that could be better utilizedto deliver higher value to your stockholders.”

Rocco Canonica

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