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NiSource buys Columbia
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February 28, 2000: 2:44 p.m. ET
After two rejections, Columbia Energy's board agrees to $6B friendly deal
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NEW YORK (CNNfn) - Energy company NiSource Inc. agreed Monday to acquire Columbia Energy Group in a friendly $6 billion cash and stock deal, ending more than eight months of hostile advances that included a more lucrative offer for the natural gas company that was later withdrawn.
The deal, which includes the assumption of $2.5 billion in debt, would create the second largest U.S. seller of natural gas, with assets stretching from the Gulf of Mexico through the Northeast. The companies hope to complete the transaction by the end of the year.
The agreement ends a contentious nine-month courtship between the two companies, which included two hostile bids from NiSource for the Herndon, Va.-based company.
Columbia's board rejected a tender offer from Merrillville, Ind.-based NiSource (NI: Research, Estimates) in October that valued the company's stock at $74 per share and prior to that the utility had submitted a tender offer valuing Columbia at $68 per share.
NiSource pulled its $74-per-share bid off the table two weeks ago when it entered serious negotiations with Columbia's board. The current offer was lowered to $72.60 per share to allow some flexibility to compete with any rival offers, but so far none have emerged.
A NiSource spokeswoman said the deal contained a $200 million break-up fee to be paid by Columbia should it attract a more lucrative bid.
Stock deal contains collar
The combined entity would boast more than 4.1 million gas, electric, water and propane customers located primarily in nine states stretching from Texas to New England. With a sales volume of 911 million cubic feet of gas per day, it will rank as the largest U.S. gas company east of the Rockies, based on total customers.
NiSource, which owns subsidiaries such as Northern Indiana Public Service Co. and Energy USA, will also offer the nation's largest underground storage system for natural gas at 700 billion cubic feet of capacity.
"We believe our new company will be positioned for explosive growth," said Gary Neale, NiSource's chairman, president and chief executive officer. "There is no doubt that natural gas is the fuel of the future. This is the market for us."
Terms of Monday's agreement call for Columbia (CG: Research, Estimates) stockholders to receive $70 in cash plus a $2.60 face value security. Up to 30 percent of Columbia shareholders can also elect to receive stock in the new company in lieu of cash and the security.
The common stock option contains a price protection collar that allows Columbia shareholders to exchange their shares for no more than $74 in the new holding company stock if the average NiSource share price exceeds $16.50 per share during the 30 days prior to the transaction.
NiSource expects the deal to be dilutive to the combined company's earnings by 10 cents per share during the first year after the deal closes and accretive thereafter. The company expects to save up to $150 million annually through cost savings achieved primarily through the combination of corporate and administrative functions.
Fate of Columbia executives uncertain
The companies gave no indication as to exactly which Columbia executives, including Chairman and CEO Oliver Richard, will be offered positions within the new company. Neale said only that he anticipated "retaining key management personnel from each of the critical operating units" at Columbia.
"Mr. Richard is fully committed to get this transaction approved," he said. "We won't speculate on the final management makeup until we're through the process."
NiSource's hostile offers often resulted in contentious words being exchanged through the media between Neale and Richard. Although NiSource's previous offers included a spot for Richard and other Columbia board members on the new company's board, Neale confirmed that this deal contained no such provisions.
"We have the freedom to do anything we want," he said.
Still, Neale added there was no lingering resentment from his company's prolonged courtship, blaming the harsh words said between the companies to "the heat of battle."
Richard did not attend the media conference call announcing the deal, but a company spokesman reiterated his commitment to seeing the deal to completion.
NiSource shares hit five-year low
Neale said he believed shareholders on both sides of the deal would embrace the acquisition price, although it was smaller than NiSource's previous offer, because the new agreement included an option to acquire shares in the new company.
But investors clearly weren't so sure. NiSource shares slid 2 to 13-9/16 in mid-afternoon trading, the company's lowest trading level in more than five years. Meanwhile, Columbia climbed 2-7/16 to 59-1/2.
Monday's decline extended a prolonged slump for NiSource's stock, which has shed more than 40 percent of its value since it launched its first bid for Columbia in June. Columbia shares, meanwhile, jumped more than 20 percent, although its stock has slid recently out of concern that the company might not find other suitors willing to make a richer bid.
In a filing with the U.S. Securities and Exchange Commission in December, Columbia said it had received "numerous" indications of interest from other parties willing to exceed NiSource's sweetened $74-per-share bid. Company spokesman R.A. Rankin said Columbia entered "substantive negotiations" with a dozen of those companies.
But, rising interest rates and overall weakness in the energy sector apparently dampened enthusiasm for a competing bid, even though Columbia was viewed as an attractive target due to its expansive 18,500-mile gas network.
Constellation Energy Group (CEG: Research, Estimates), a Baltimore, Md.-based utility, was periodically mentioned as a likely bidder, but a source there said the company never entered into negotiations with Columbia. 
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