NiSource Inc., the spurned suitor of Columbia Energy Group, yesterday said it will take its $5.7 billion bid directly to shareholders in order to force the Herndon-based gas utility to come to the negotiating table.
Columbia Energy has twice rejected merger offers from the Indiana gas and electric utility. Now, NiSource said it will offer to buy shares at $68 in cash, a hostile maneuver known as a tender offer, in order to accumulate enough shares to force the hand of Columbia's management.
Columbia urged its shareholders in a statement yesterday not to act and said the board would review NiSource's offer and make its recommendation within 10 business days.
Investors appear to believe NiSource will sweeten its bid. NiSource said it wants to be a regional power in the rapidly consolidating utility industry, stretching from the Midwest to New England.
"The bid they put in is a very respectable offer and certainly a great place to start a negotiation," said David Kiefer, portfolio manager of the Prudential Utility Fund in Newark, one of Columbia Energy's largest investors. He added that he thinks Columbia Energy is worth more than $68 a share but that NiSource "has been very clear in their willingness to increase that bid."
Columbia Energy's stock fell 18 3/4 cents to close at $63.56 1/4. NiSource closed at 26.93 3/4, down 43 3/4 cents.
In a letter to Columbia Chairman and chief executive Oliver G. Richard III, NiSource Chairman and chief executive Gary L. Neale said his company intends "to pursue this transaction to its end."
NiSource faces high odds, however, because utility regulators would probably balk at a hostile takeover.
NiSource also took action on another front, filing a lawsuit in Delaware, where Columbia is incorporated, that alleges Columbia violated corporate bylaws that require 13 board members. At the last annual meeting, Columbia elected only four new members, leaving it one short. NiSource's suit, should it succeed, would force Columbia to hold a shareholder meeting to elect a 13th member and then presumably also discuss the takeover bid. Columbia shareholders cannot force a vote on a merger proposal, but they are allowed to propose other measures, such as changes in corporate bylaws. NiSource, through a subsidiary, owns Columbia stock, which means it could nominate a friendly candidate and propose shareholder resolutions.
Several experts dismissed the chances for NiSource's lawsuit. "I have never heard ever of a company that [was legally bound] to a specific number of board members," said Nell Minow, an expert in corporate governance and partner in the Washington firm Lens Investment Management. Corporate bylaws, she noted, are flexible. For a lawyer to allow a client to write up bylaws requiring a specific number at all times would be "tantamount to legal malpractice," she said.
The lawsuit is "all posturing," said Donato J. Eassey, an industry analyst at Merrill Lynch Global Securities in Houston. Eassey said that Columbia's rejection of NiSource's proposals are warranted and that Columbia's stock price does not reflect the firm's true worth. Columbia's stock became "inordinately cheap" because of back-to-back poor quarters and warm weather, he said.