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NiSource Takes Offer to Columbia Shareholders

June 28, 1999
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NiSource Takes Offer to Columbia Shareholders

Determined to fight to the end, NiSource took its $68/share offer ($5.6 billion) directly to Columbia Energy Group shareholders on Friday. It also filed litigation against Columbia and its directors in the Delaware Chancery Court in an attempt to gain an opportunity to nominate a director to fill a vacant seat on Columbia's board.

The seat was vacated in May when one of Columbia's directors retired, but Columbia failed to call for a shareholder vote on a replacement at its annual meeting last month, NiSource said. NiSource Chairman Gary Neale said his company will attempt to secure all 83 million outstanding shares of Columbia common stock and intends to nominate "a slate of nominees for election" to Columbia's board at its next annual meeting.

"In the meantime, we intend to nominate an independent candidate for election to your board of directors to fill the fifth Class III directorship required under your certificate of incorporation.. We regret that we have to resort to these actions," Neale added. "We have made it clear that we intend to pursue this transaction to its end....."

Columbia CEO Oliver G (Rick) Richard III rejected NiSource's overtures earlier this month, saying Columbia is "not for sale and is not interested in any merger transaction in which another company acquires control of Columbia."

In a letter to Richard this week, Neale said Columbia's shareholders "have lost faith in your board's willingness to act in their best interests." NiSource claims shareholders representing 45% of Columbia's outstanding shares have "expressed support" for its proposal.

NiSource's strategy is to create a "natural gas distribution corridor" between Chicago and New England and between the Gulf Coast region and the Northeast. NiSource closed on a $780 million acquisition of Massachusetts-based Bay State Gas Co. in February and in April completed a $150 million purchase of TPC Corp., which owns a network of high-deliverability salt cavern storage facilities in the eastern U.S.

A combination with Columbia would more than double the size of Merrillville, IN-based NiSource, creating a company with a market capitalization of $8.3 billion. It would be one of the largest energy distribution companies in the country with nearly four million electric, gas and propane distribution customers, 19,000 miles of pipelines connecting the Texas Gulf Coast and the Atlantic coast, 700 Bcf of total storage capacity, and 800 Bcf of gas reserves.

Many observers and analysts that have spoken with NGI like the strategy 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 offer in the low- to mid-$70s/share would be more in line with Columbia's worth. 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 increase its cash offer if the Columbia board "agrees to cooperate with us and negotiate a definitive merger agreement.

"We are spending valuable resources pursuing this transaction without your cooperation; resources that could be better utilized to deliver higher value to your stockholders."

Rocco Canonica

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