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************************************************************************ Read SCIENTECH's SourceBook Weekly article: "Making the Wires Sing: Some Utilities Take on Challenges, Opportunities of Being Wirecoms," at: http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH IssueAlert, November 1, 2000 NiSource and Columbia Energy Group Complete Merger By: Will McNamara, Director, Electric Industry Analysis =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D NiSource Inc. and Columbia Energy Group received approval for their merger from the U.S. Securities and Exchange Commission (SEC) and are expected to close their transaction today. The combined company will continue to trade on the New York Stock Exchange as NiSource (NYSE: NI). Columbia Energ= y Group shares (NYSE: CG) will cease trading before the market opens Nov. 2. ANALYSIS: It's been a long and rocky road, to say the least, for the $6 billion marriage between these two companies, which reportedly will create the largest U.S. natural-gas distributor east of the Rocky Mountains. The union started out as a hostile takeover in June 1999, when NiSource began making several attempts to purchase all outstanding common shares of Columb= ia Energy Group (CEG). All of NiSource's offers were rejected by CEG. In fact, up until just a year ago, CEG fiercely fought the takeover, claiming that= =01*due to financial and operational problems=01*NiSource was not an appropriate ma= rriage partner. However, after about eight months of offers and rebuffs (with NiSource offering as much as $74 a share), Columbia Energy Group finally consented to the $6 billion offer, ironically based on Columbia's February 2000 stock value of $72.60 a share and consequently lower than NiSource's previous offers. The merger creates a company that could gain a strong lock on the natural-g= as market in a corridor stretching from Texas to Maine. Merrillville, Ind.-bas= ed NiSource is a holding company (parent company to NIPSCO and Bay State Gas, among several other distribution companies) with operations in electric, natural-gas and water distribution in the Midwest and Northeastern United States. Its generation portfolio includes four coal-fired generating statio= ns, two hydroelectric generating plants and four gas-fired combustion plants. NiSource also markets unregulated energy services in key competitive areas. CEG, based in Herndon, Va., is an energy services company with assets of approximately $7 billion and ownership of 16,500 miles of interstate gas pipelines that run from Louisiana to the Northeast. CEG is engaged in nearl= y all aspects of the natural-gas business, including exploration and producti= on, transmission, storage and distribution, as well as propane and petroleum product sales and electric power generation. Under the terms of the merger agreement, NiSource is offering 3.04 shares for each Columbia common share. CEG shareholders can elect to receive New NiSource stock, or receive a combination of $70 in cash plus $2.60 in=20 securities. Just today, NiSource revised its estimate of the number of CEG shares elect= ing to receive NiSource stock upward to approximately 77 percent from its origi= nal estimate of 60 percent. Regarding current stock performance, NiSource share= s closed $24 15/16 on Oct. 31, not far from a 52-week high of $25 5/8. Shares of CEG closed at $71 15/16. Upon completion of the merger, the companies will create a new holding company (as of yet unnamed) under which NiSource and CEG will become wholly owned subsidiaries. Together, the companies will serve approximately 3.6 million customers. The companies have identified their post-merger strategy as growth in "energy supply and distribution, as well as the development of new energy choices through emergent technologies." The regulatory approval process for the NiSource / CEG merger went=20 comparatively smoothly, finishing just eight months after the formal announcement of the merger. Yet, the SEC gave its approval to the merger on an important condition. Under the laws of the Public Utilities Holding Company Act of 1935 (PUHCA), the SEC has required NiSource to divest of IWC Resources, its water operations subsidiary based in Indianapolis. Under PUHCA, utility holding companies are required to divest operations that are not integral to their primary operations. The divestiture must take place within three years to comply with U.S. legislation, according to NiSource. Although the merger is small in comparison to recent mega-mergers between AEP / CSW and PECO / Unicom, this partnership is important. It's not=20 surprising that NiSource pursued CEG so diligently, as the acquisition of CEG more than doubles the size of NiSource and changes it from a predominantly elect= ric company to a gas transmission and distribution company with electric=20 operations. NiSource will own a natural-gas business extending from Chicago to New England, reportedly placing it as the nation's third-largest natural-gas company (largest in the West). The completion of the merger comes at an ideal time for NiSource, just as reports of a shortage in natural-gas suppl= y indicate that the prices for natural gas will rise significantly this winte= r and into next year. As a leading supplier, NiSource will be sitting in a prime position. However, the divestiture of IWC Resources is a clear downside to this merge= r, at least from NiSource's point of view. Of all the players that have=20 penetrated the water industry and then retreated (for example, Enron and Duke), NiSour= ce was one of the few that stood out as having some success in this heavily regulated market. In fact, up until recently, NiSource had claimed that its growth strategy was to build a distribution chain around the core=20 natural-gas, electricity and water distribution businesses. More than being a significan= t money maker for the company, NiSource's water business provided a steady cash flow and, perhaps more importantly, access to additional energy=20 customers. Water customers as an aggregated group can be very valuable for an energy company. The company that controls water services has another stable base of customers to which it can sell electric and gas services. For instance, NiSource had purchased IWC in part to prevent its competitor, IPALCO=20 Enterprises, from obtaining the water customer list in this service territory. The bottom line of this merger may be that, while other companies are focus= ing on building critical mass, the New NiSource is carving out a specific niche (natural-gas services) in a targeted market (Texas to Northeast). The fact that it will no longer own IWC Resources may pale in comparison to the projected growth that the New NiSource may find in the natural-gas business= . Of particular importance to this new company is the ownership of 16,500 miles of interstate gas pipelines gained from CEG. Owning a significant supply of natural gas in a very tight market may become the real secret advantage of this merger. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Need to design and implement your IT infrastructure? Learn more about=20 SCIENTECH's Information Technology team and what they can do for you at: http://www.consultrci.com/web/rciweb.nsf/web/Depts-IT.html =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert Sincerely, Will McNamara Director, Electric Industry Analysis wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Feedback regarding SCIENTECH's IssueAlert should be sent to=20 wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH's IssueAlerts are compiled based on independent analysis by=20 SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpos= e in publishing its IssueAlerts is to offer an independent perspective regard= ing the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, pleas= e reply to this message and in the body of the email type "remove."
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