NiSource’s hostile takeover of Columbia Energy wins the overall prize for best US M&A deal for several reasons. It was a takeover of a regulated by an unregulated utility by an aggressive firm that secured $6 billion in financing from CSFB and Barclays Capital with a market capitalization of $2 billion.
NiSource’s executives and their bankers showed tenacity as their share price dropped over 30% during the course of the battle. The offer finally accepted after an auction was actually below NiSource’s final tender offer. It received the quickest ever approval by the regulators of a registered utility deal. And NiSource’s stock price has increased over 80% since the deal was accepted.
But it was a long haul. Jamie Welch, managing director, global energy, power and project finance group at CSFB, describes it as a journey rather than a deal. The offer finally accepted by Columbia was submitted in February 2000, and the deal was closed in November.
But the deal has its origins back in late 1998. “NiSource had decided that it had two options for growth, Consolidated Natural Gas or Columbia Energy,” says Welch. The former was already in talks to merge with Dominion Resources, so NiSource directed its attentions to Columbia.
In late autumn 1998 the CEOs from each company, Gary Neale and Oliver Richard, went on a hunting trip together and talked amicably about getting their firms together. It appeared to be a good match, not least because NiSource would need to retain most of Columbia’s executives to run the company and Neale was looking for a second in command to take over once he retired a couple of years later.
By the time of the first official meetings in April, when NiSource made an offer of $65 a share, things had changed, and Columbia’s executives were being cautious and at times evasive. They cancelled their April 16 meeting, and two days later made a bid for Consolidated Natural Gas, which the latter rejected in favour of its existing agreement with Dominion.
By the end of May Columbia refused to deal with NiSource any more, so the latter went public with a bear hug offer of $68 a share on June 7.
That was rejected, as was an increased offer for $74 a share in mid-October, and in November 1999 Columbia announced it would sell itself by auction. “We kept the tender offer open during the auction,” says Welch. “We wanted to show that we were absolutely unwavering in our commitment to get this deal done.” But it wasn’t easy. In late 1999 utilities prices were hit and NiSource’s fell from $28 to $18 a share by the beginning of 2000.
NiSource got lucky, though. Each time any potential bidder for Columbia was mentioned as an interested party, its stock went down. And in the event, NiSource was the only bidder. Four days before the close it withdrew the tender offer, and managed to win the company. Investors could opt either for a 100% cash deal at $70 a share or take up to 30% in NiSource stock at a value of $74 a share.
Despite their anger at losing the fight to NiSource, and even more so at a cheaper price than they could have got, Columbia’s board accepted. The CEO resigned, but five of the board members have stayed on to help run the merged company. The acquisition was paid for with a combination of asset sales ($1.5 billion), a stock offering ($1.8 billion) and a bond issue which at $2.65 billion was the largest ever high-grade gas deal in the US.
