NiSource chief won't rule out unwinding 2000 merger

NiSource Inc.'s board of directors is considering a new path forward for the company, and that could include a breakup of the company formed six years ago when NiSource and Columbia Energy Group merged.

The NiSource board of directors is reviewing a number of options "to unlock the underlying value of the company's asset base," NiSource President and Chief Executive Officer Robert Skaggs Jr. told analysts Thursday in a conference call to discuss third-quarter earnings.

The CEO, who took over the executive reins of NiSource last year from longtime CEO Gary Neale, said the board plans to decide what options it wants to pursue by the end of this year or early 2007.

Analyst Andrew Levi, of Bear Wagner Specialists, asked Skaggs if there would be any strategic advantage to undoing the Columbia merger, similar to what Duke Energy is currently doing with its natural gas business.

"We have looked at all the alternatives," Skaggs said. "We have looked at the Duke transaction. And that notion, as well as other notions, are part of the array of options we are looking at."

In April, Duke Energy Corp., of Charlotte, N.C., completed its merger with Cincinnati-based Cinergy Corp. in a deal valued at about $9 billion. It then proposed separating its natural gas business from its electric business.

The split appears to be on its way to completion, with a new name, Spectra Energy, already picked out for the gas business. That company will be a standalone, publicly traded company.

A separation of those same business lines at NiSource would involve splitting off its NIPSCO electric business, with 445,000 customers in northern Indiana, from NiSource's natural gas business, which has more than 3.3 million customers in nine states.

Four years ago, NIPSCO proposed separating its natural gas and electric businesses into separate companies. The effort was later rescinded as part of a regulatory settlement.

NiSource spokeswoman Kris Falzone on Thursday said NIPSCO would adhere to existing regulatory constructs before moving ahead with restructurings in any of the states where the company does business. Where necessary, it would apply for regulatory approvals.

NiSource merged with Columbia Energy in a $6 billion deal in November 2000. The deal transformed what had been a regional utility into a national player, with more than 3 million natural gas customers spread across nine states.

Skaggs made it clear Thursday that the board of directors is committed to maintaining NiSource's investment grade credit rating. That is important to bondholders, who could see the value of their investments diminish if NiSource's credit rating went to junk.

NiSource stock closed at $23.83 in Thursday trading on the New York Stock Exchange, up 55 cents on a volume of 1.03 million shares.

In a September presentation at Merrill Lynch's Global Power and Gas Leaders Conference, Skaggs said discussions at the board level on the strategic options were "engaged, robust and on point."

Former NiSource CEO Neale remains chairman of the board.

Skaggs told the conference the review was a "methodical, sequential look at the business" with the intent to "create value as opposed to inadvertently destroying value."

"We have literally looked at everything from A to Z," he said.

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