Columbia Energy Group won a small victory last week when the U.S. District Court for the District of Delaware denied NiSource’s motion for expedited discovery in its federal case against Columbia. Meanwhile, NiSource raised legal pressure with yet another suit filed in the state Chancery Court in Delaware. By increasing the legal pressure while pushing its $68/share tender offer to Columbia shareholders, NiSource believes it can force Columbia officials to the negotiating table.

In its federal suit, which was filed in late June, NiSource charges Columbia’s board and management with making “false and misleading” statements that are “intended to unfairly disparage” any potential merger transaction between the companies. NiSource claims Columbia’s statements have deprived CG shareholders of having a “meaningful opportunity to consider” the tender offer and is seeking a court order allowing NiSource officials to “depose the investment bankers who prepared [Columbia’s] analysis as well as a number of individual [Columbia] directors who apparently made statements relying on these calculations,” according to the court. With its motion for expedited discovery, NiSource was seeking to speed up the process. But the court concluded there really is no rush, noting NiSource already has admitted its tender offer could be on the table for up to another year and a half. The court still has not ruled on Columbia’s motion to dismiss the complaint.

Meanwhile, NiSource filed another complaint in the Delaware Chancery Court asking the court to prohibit Columbia from going forward with its $400 million share repurchase program, which NiSource admits “ultimately may precipitate the withdrawal” of its tender offer if Columbia acquires 8.25% or more of its outstanding common stock. NiSource needs to gain 85% of Columbia’s common shares for it to be able to force Columbia into submission. (A NiSource spokeswoman indicated that as of last week the number of shares tendered had not exceeded 30%. The tender offer is set to expire Aug. 6).

A Delaware Chancery Court decision on NiSource’s first suit is still pending. In its suit NiSource is attempting to gain an opportunity to nominate a director for Columbia’s board at its next annual meeting (see NGI June 28).

In other merger-related news, Columbia last week gained the support of Ohio state Rep. David Goodman (R-Bexley), who warned regulators and legislators a takeover by NiSource could lead to “the closing of the Columbus headquarters for Columbia Gas of Ohio, hundreds of lost jobs in Columbus and other Ohio cities, higher prices for Ohio consumers, and diminished ability of Columbia Gas to provide a reliable source of natural gas for millions of Ohioans.”

Goodman urged the Public Utility Commission of Ohio, the Ohio Consumers Counsel, the Ohio Attorney General’s office, the Ohio General Assembly and other state agencies to “carefully and thoroughly investigate the proposed merger to ensure that Ohio consumers are not harmed, Ohio jobs are not threatened and Ohio laws are not violated,” by the proposed hostile purchase.

NiSource 2Q Net Income Falls 22%

A glance at NiSource’s second quarter earnings tells a lot about why it’s eyeing Columbia. While Columbia won praise from analysts for beating earnings expectations with a 15% jump in net income, hostile suitor NiSource fell short of Wall Street expectations by $0.03/share, reporting a 22% drop in net income to $22.9 million or $0.18/share compared to 2Q98.

NiSource attributed the decline to the “seasonal nature of earnings” from its recent acquisitions, salt cavern storage operator TPC Corp. and Bay State Gas, a New England gas distribution company serving 312,000 customers in Massachusetts, New Hampshire and Maine.

NiSource turned its focus to its year-to-date performance, in which basic earnings per share were 80 cents, a 10% increase from the same period a year ago. Net income for the six-month period was $99.5 million, an increase of $9.3 million from 2Q98. However, the 1999 and 1998 six-month periods are not directly comparable because of the acquisitions of Bay State and TPC in early 1999.

Rocco Canonica

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