Columbia shareholders have sent a “resounding message” to theColumbia board to sit down and negotiate a merger deal withNiSource. More than 60% (49,638,497) of CG common shares had beentendered in response to NiSource’s $68/share offer ($5.7 billion)as of last Friday and NiSource extended the deadline of the tenderoffer to Oct. 15.

But judging from Columbia CEO Oliver G. Richard’s negativeresponses so far, it appears unlikely Columbia will do anything ofthe sort, and instead will continue to set up defenses inpreparation for a lengthy siege.

Many of Columbia’s shareholders clearly like the idea of beingpaid a 13% premium (as of yesterday) for their CG shares, but theyhave a long wait ahead of them unless Columbia gives in. WithoutColumbia’s consent to a deal, CG officials know NiSource will facea tough struggle.

NiSource’s first step is to gain 85% of Columbia’s shares tomeet a requirement of Delaware law. It then would face a grueling12 to 18 months of state and federal regulatory review (shorteronly if Columbia consents to a takeover). And a hostile takeover inthe utility industry never has made it through the regulatoryprocess.

If NiSource did cross those hurdles, it still would have to gainseats on Columbia’s board of directors, which, if all wentNiSource’s way, would take more than two years. Meanwhile, NiSourcewould be sinking millions into the battle and would face seriousfinancial hurdles to complete the deal: obtaining a $5.7 billionloan and then completing a $2.6 billion equity offering.

“Frankly, we believe shareholders of both of our companiesshould question why you are continuing this costly and disruptiveeffort when it is evident NiSource cannot buy the tendered sharesfor at least 12 to 18 months, if ever,” Richard told NiSource CEOGary Neale in a letter. “Indeed, NiSource itself has described itstender offer as little more than a ‘fully reversible, risk-free andcommission-free’ shareholder referendum.” NiSource cannot actuallybuy any more than 4.9% of Columbia’s stock unless it receivesapprovals from state and federal regulators.

“We know our shareholders believe our stock price should behigher than where it is currently trading,” Richard added.”Columbia’s board and management agree strongly that the company’strue value and long-term business potential are not yet fullyreflected in its stock price, which has been impacted this year bymuch warmer than usual weather and significant investment and costsin the marketing segment. We are committed to building shareholdervalue in both the near and long term, and are hard at work inimplementing the strategic initiatives that will help us achievethis objective,” he said.

Columbia reassured its employees last week that there’s is noneed for concern at this point. And over the long-term Columbia hasother protections against the hostile takeover, including staggeredterms for its board members. So far, the company has doneeverything possible to prevent the transaction, including settingaside more than $20 million for legal and accounting defenses.

Although Neale said he is “committed to seeing the processthrough” and urged CG shareholders to “demonstrate their desire forColumbia’s management to meet with us,” at this point it seemsclear that is the last thing Columbia management would do.

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