NiSource dropped its hostile $74/share tender offer ($6.1billion) for all of the outstanding common stock of Columbia EnergyGroup (CG) last week and said it will return the 47,576,897 CGshares, representing 58.6% of the Columbia shares outstanding, toshareholders. It doesn’t mean, however, that NiSource is giving up.On the contrary, the company said it intends to continue thenegotiation and bidding process set up by Columbia’s board.

“We are gratified by the support that Columbia shareholders haveshown for NiSource over the last eight months,” said NiSourceChairman Gary L. Neale. “We are now entering the final phase ofColumbia’s defined bidding process. In order to maintainconfidentiality and flexibility in this process, it is necessaryfor us to withdraw the tender offer at this time.”

One source, who asked to remain anonymous, said NiSourcewithdrew the offer mainly because extending it or revising it would”tip the hand” of its competitors, who also are attempting to buyor merge with Columbia. She also said the process is nearingcompletion.

NiSource first made an offer of $67/share to Columbia lastsummer, which Columbia promptly turned down as inadequate and fromthe wrong strategic partner. NiSource then took its offer directlyto CG shareholders in June but received a mixed response. Amajority clearly favored the deal but it was not an overwhelmingvote of confidence at only 60%. Columbia continued to fight thetransaction.

In October after NiSource raised its tender offer to $74/shareand offered Columbia management executive positions at NiSource,Columbia’s board once again determined the offer was inadequate,stating that it was the wrong price at the wrong time and from thewrong company. The Columbia board then authorized management toexplore strategic alternatives to generate value in excess of whatColumbia’s business plan or NiSource’s unsolicited proposal couldcreate. NiSource and other companies were invited to participate.

Columbia said it would consider a variety of possibletransactions, including a merger, reorganization or the dispositionof a material amount of stock or assets. The company stated thatwould be no assurance that any discussions would result in atransaction or other action.

The combination of NiSource and Columbia would create a companywith $13.5 billion in assets. Herndon, VA-based Columbia has $7billion in assets and a market capitalization of about $5.2billion. It engages primarily in gas distribution, transmission,storage, exploration and production, propane and petroleum productsales, electric power generation and retail energy marketing.NiSource is a utility holding company with $6.5 billion in assetsand a market capitalization of $2.2 billion. Its subsidiaries,which include Northern Indiana Public Service Co. and Bay StateGas, provide electric, gas and water distribution service.

Rocco Canonica

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