NiSource Inc., a Midwestern energy holding company that distributes electric power, natural gas and water, yesterday dramatically increased the pressure on Columbia Energy Group by raising its hostile takeover bid to $74 a share from $68 and making room in its board room and executive suites for current Columbia board members.
The revised tender offer for an unwelcoming Herndon-based Columbia Energy appeared likely to breathe new life into the simmering and bitter takeover fight that began in June with an unsolicited bid from NiSource, based in Merrillville, Ind. At $74 a share, the deal would be worth about $6.1 billion in cash for shareholders of Columbia, which explores for, produces, transports and sells natural gas to retail and wholesale customers.
"This is the price at which they have to take a strong look at it," said Edward J. Tirello, an analyst with Deutsche Banc Alex. Brown. "More importantly, they have to decide whether they want to entertain another bid. I think this is Columbia's put up or shut up time."
Until yesterday, NiSource's takeover attempt had appeared to be running out of steam. The takeover price of $68 a share had attracted offers to sell about 60 percent of Columbia's stock, but by Friday, when the offer expired at midnight, the percentage had fallen to 54 percent.
Columbia has been buying back its own stock, which closed Friday at $60.50 a share. The company has bought back about 2.3 million shares. Chairman Oliver G. Richard III wrote to shareholders last week denouncing the takeover bid and calling NiSource's continued pursuit an "ill-advised and stubborn decision" that he said was harmful to shareholders of both companies.
Columbia spokesman Al Rankin said yesterday that the board, "consistent with its fiduciary duties will review the latest unsolicited offer and make recommendations to shareholders." He added that "the company urges shareholders to take no activity until the board has reviewed the offer and made its recommendations." The new tender offer expires Nov. 12.
Richard had referred to the initial bid as "the wrong price, and the wrong time and with the wrong company."
NiSource Chairman Gary L. Neale yesterday pointedly called the revised offer "the right price for the right company at the right time." Several industry analysts have said that Columbia's management appeared to have a credible strategy for increasing its stock value to about $74 over the next year. To succeed, NiSource would have to crank up its offer to that level, they said.
In an interview, Neale said that Credit Suisse and Barclays Bank PLC have committed to fully financing the takeover and that Standard & Poor's and Moody's have reviewed the transaction and see no long-term credit risk nor a reason for changing NiSource's credit rating.
He also said that four prominent former state utility regulators retained by the company to review the offer had found no regulatory risk and had confirmed NiSource's belief that the transaction could be completed in six to nine months. The two companies, of which NiSource is the smaller, would have a combined market capitalization of about $7.6 billion. It would make NiSource the biggest distributor of natural gas east of the Rocky Mountains.
"We think it's a full and fair offer," Neale said. "We think it's time to get the agreement on the table and expedite the transaction."
In his letter to shareholders last week urging them to resist NiSource's offer, Richard raised questions about the company's ability to deliver on its unsolicited proposal and had speculated that regulators would raise concerns about the borrowing needed to complete it.
The letter also questioned NiSource's record on customer service, rates and environmental responsibility, noting that the company, formerly known as Northern Indiana Public Service Co., or Nipsco, had been ranked the third "dirtiest" electric utility in the United States last year by the Natural Resources Defense Council. In a letter to Richard and his board dated yesterday, Neale was conciliatory, offering seats on an expanded board to five Columbia board members, including Richard, and inviting Richard to become vice chairman of the merged companies.
NiSource also said it expected to retain the heads of all the critical operating units and the current headquarters for those units and said that it has "the highest respect for Rick Richard, his management team and your employees."
If NiSource's bid for Columbia fails, both companies are likely to be takeover targets by other energy companies, according to industry analysts. "It may take a while, but I think the ultimate result will be that Columbia is, in fact, merged or bought and becomes a piece of a much larger entity," said Donato J. Eassey of Merrill Lynch Global Securities Inc.
"The most likely acquirer is an electric company that is convinced of the important of convergence and the ability to provide and trade gas and electric as a commodity in both the wholesale and potentially the resale market," said Lester P. Silverman, head of McKinsey & Company Inc.'s electric utility practice.
Before it put Sithe Energies Inc. of New York, an independent power producer, on the market, there was speculation that the European consortium Vivendi might be interested in Columbia. One interesting possibility, according to people in the industry, would be a combination of Sithe, Columbia and AES Corp. of Arlington, the world's largest publicly held power producer.
Tirello and others said that the ill will between Neale and Richard may ultimately prevent the merger of those two companies from occurring, notwithstanding Neale's olive branch yesterday. The revised offer puts Columbia management in a position of having to take a serious look at NiSource or come up with an alternative, he said.
"If they have somebody in the wings, they better bring them out," he said.