Columbia Energy Group`s hair-trigger refusal of NiSource Inc.`s unsolicited takeover proposal has displeased some of its largest shareholders. They particularly dislike the tone of “we are not for sale.” The statement resounds of finality and causes shareholders to question the board`s commitment to its fiduciary duties.
“As I have told you on several occasions, Columbia is not for sale,” wrote Oliver G. Richard III, chairman and chief executive, in a letter announcing that Columbia`s board rejected the merger proposal.
The letter said its board determined NiSource`s cash tender offer for all of Columbia`s outstanding common stock for $68 per share was inadequate and not in the best interest of shareholders or the company. It asserted its shareholders understand the utility`s strategic plan.
“As a big shareholder of Columbia, I disagree with that statement,” said David Kiefer, portfolio manager of the Prudential Utility Fund at Prudential Investments in Newark, N.J., a substantial shareholder in both companies. “We support NiSource and Columbia negotiating a better price than $68 a share.”
Herndon, Va.-based Columbia indicates no interest in conducting friendly negotiations, a move that NiSource said would bring a higher proposal. Columbia`s latest rejection letter described the proposal as “the wrong price at the wrong time with the wrong company.”
NiSource, based in Merrillville, Ind., announced its offer to buy Columbia, for $5.7 billion in early June. Columbia responded early that it wasn`t interested in any transaction in which another company acquires control of Columbia. NiSource, the parent of Northern Indiana Public Service Co., subsequently launched a hostile tender on June 24, which at press time was slated to expire August 6.
“I`m very displeased with the way Columbia has handled this,” Kiefer said. “Is this a negotiating strategy to get a higher bid? I would at least like to see them sitting down to talk with NiSource about the proposal.”
He disagrees with Columbia`s comments that NiSource is the wrong company. Both are strong companies, he said, and joining the two would give the merged companies a bigger, continuous footprint.
The combination would make NiSource one of the largest natural gas companies in the country with four million distribution customers, and pipelines stretching from the Gulf of Mexico to the Atlantic coast.
Kiefer said it doesn`t matter if Columbia would prefer to merge with a different company. “The goal is to obtain the best value for my shareholders. If someone is willing to pay cash,” he said, “cash is the ultimate objective currency.”
Several investor-owned utilities have attempted hostile acquisitions in the last two decades, but have been unsuccessful. In recent years they have either been withdrawn or turned cooperative.
– PECO attempted an unsolicited acquisition of PP&L Resources in 1995, but it failed due to heavy local opposition.
– Western Resources attempted a hostile take-over of Kansas City Power & Light in 1996. Negotiations later became friendly.
– In 1997, CalEnergy withdrew its offer to buy New York State Electric & Gas after a two-month battle.
Columbia has a poison-pill anti-takeover defense and a board with staggered membership terms, which will make it very difficult for NiSource to complete the deal. NiSource said it is undeterred and will “vigorously pursue” its offer.