In rejecting NiSource’s revised tender offer of $6.1 billion($74/share) over the weekend, Columbia Energy Group’s boardannounced that it authorized management to begin considering alloptions, including a sale of all or part of the company to a thirdparty, possibly even NiSource.
The announcement made it appear as if Columbia finally iswilling to sit down and negotiate a deal with NiSource. However, ina letter to NiSource Chairman Gary Neale, Columbia CEO Oliver G.(Rick) Richard made clear that Columbia still believes aNiSource-Columbia combination would be a bad idea.
Richard said the revised offer, which represents an increasefrom the prior offer of $6/share, was determined to be inadequatebased on written opinions from Morgan Stanley Dean Witter andSalomon Smith Barney Inc. (see Daily GPI, Oct. 19). “In addition tothe financial inadequacy of the offer, the board continues to beconcerned about the significant conditions and regulatory hurdlesassociated with the NiSource proposal,” the company said in astatement. It urged shareholders to hold onto their shares until amore favorable alternative is found.
Richard told Neale that Columbia’s board authorized managementto “explore and evaluate a number of strategic alternatives togenerate shareholder value greater than that which Columbia’sbusiness plan or the revise offer can create.
“As part of that process,” he said, “we will initiatediscussions with third parties — including NiSource, if it isinterested — regarding possible transactions designed tosignificantly enhance value for our shareholders. We intend toconsider a variety of strategic alternatives, including anextraordinary transaction, such as a merger, reorganization or thedisposition by Columbia of a material amount of assets. Of course,there can be no assurance that this process will result in any suchtransaction.
“We continue to have serious questions about the strategic andfinancial merits of a combination of our two companies, as well asabout NiSource’s ability to satisfy the conditions of its financingcommitments and successfully complete a transaction of themagnitude required. Nonetheless, be assured that we will attempt toaccommodate NiSource’s participation in this process.”
A NiSource spokeswoman said the company had no formal response.Although it was disappointed in Columbia’s rejection of the revisedoffer, it views the small opening for negotiations as “positive.”She said at this time, however, NiSource still intends to keep itstender offer on the table for Columbia shareholders until the Nov.12 deadline.
The move, which has been expected for some time, was greetedfavorably by Wall Street. NiSource shares gained 38 cents yesterdayto close the day at $20.31/share. Columbia shares gained $2.50yesterday to close at $64.50.
Analysts are completing their short lists of companies likely tojump into the bidding. Most expect a regional electric utility withdeep pockets to sweep Columbia off its feet. PaineWebber electricutility analyst Barry Abramson said his list includes theConsolidated Natural-Dominion Energy combination, Southern Company,FirstEnergy, GPU, Unicom-Peco and Reliant Energy.
He said he expects CNG-Dominion would be very interested in thelocal distribution assets, while Southern would want to grabColumbia’s transmission and storage but would leave behind thedistribution. Because the Unicom-Peco merger of equals isn’tstretching the financial resources of either company, they would belikely candidates. GPU already has indicated it is prepared to dowhatever it takes to increase shareholder value. And Reliant hasbeen disappointed with its South American investments and might beinterested in finally tapping into some prime Northeast marketaccess, said Abramson. Other potential suitors previously mentionedinclude Cinergy, KeySpan and Paris-based Vivendi, which is in theprocess of attempting to sell its share of Sithe Energies.
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