Columbia urges stockholders to reject NiSource

$5.7 billion offer called too small

suitor might go higher


July 07, 1999|By BLOOMBERG NEWS

HERNDON, Va. -- Columbia Energy Group, which owns gas utilities in five states, advised its shareholders yesterday to reject a $5.7 billion buyout offer from NiSource Inc., saying the bid is "not reflective of Columbia's true value."

NiSource, owner of Northern Indiana Public Service Co., Indiana's largest utility, said it's still pursuing Columbia and would be willing to increase its $68-a-share cash offer. NiSource took the bid directly to Columbia shareholders last month after Columbia's board rejected it. The offer expires Aug. 6 but is amendable.

NiSource has 305,000 gas customers in Maine, New Hampshire and Massachusetts. Buying Columbia would give it gas utilities with 2 million customers in Kentucky, Maryland, Ohio, Pennsylvania, Virginia and Washington, D.C.

Herndon, Va.-based Columbia had sales of $6.6 billion last year.

Owning Columbia would let NiSource expand in lucrative energy markets in the Northeast and give it a gas business with about 4 million customers from Indiana to Maine.

Columbia says its strategic plan, including increasing earnings by 10 percent to 12 percent a year until 2001, would create more value for shareholders.

"The various unsolicited merger proposals from NiSource have been for the wrong price, at the wrong time and with the wrong company," said Oliver Richard III, Columbia's chairman, in a letter to NiSource Chairman Gary Neale.

Unless NiSource is "planning massive layoffs or rate increases," it can't achieve the savings needed to increase earnings, Richard said in the letter.

Regulators would frown on NiSource's plan to borrow $6 billion to complete the transaction, Columbia said.

NiSource doesn't plan any layoffs at Columbia's operating companies and would freeze rates, said NiSource spokeswoman Maria Hibbs.

Those concerns are "fundamentally irrelevant to Columbia's shareholders. They should be asking, does NiSource have the mon- ey and is the price fair? We're saying we do and we believe the price is fair," she said.

If Columbia's management agrees to talk, NiSource would "be willing to raise the price," Hibbs said.

Hammond, Ind.-based NiSource, which had sales of $2.9 billion last year, has said it would expect the buyout to increase its earnings by more than 12 percent a year and that the transaction would add to earnings in the first year.

Columbia is concerned that NiSource's plan to borrow to finance the transaction would create a company with a debt-to-capital ratio of 84 percent immediately after the transaction closes, Richard said.

NiSource's plan to pay down debt by selling $2.6 billion in stock, the biggest utility industry offering ever, is too risky, Richard said.

Pub Date: 7/07/99

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