Southwest Gas loses CEO to merger

John Wilen

Tuesday, Dec. 15, 1998 | 12:03 p.m.

Southwest Gas Corp. of Las Vegas agreed to be acquired by ONEOK Inc., a Tulsa, Okla., company that provides natural gas to about 1.4 million customers in Oklahoma and Kansas.

ONEOK will pay $28.50 per Southwest Gas share, valuing the company at about $1.8 billion including $910 million in assumed debt.

As part of the deal, Michael Maffie, Southwest Gas' president and chief executive, will step down, said company spokesman Roger Buehrer. Buehrer declined further comment on the reasons for Maffie's pending resignation.

The companies said the merger should close in the fall of 1999. The deal requires approval from Southwest Gas shareholders, regulators in Nevada, Arizona and California -- the three states where Southwest Gas operates -- and from the Federal Energy Regulatory Commission.

"The new company will be solid financially with strong cash flow to enhance growth opportunities in the rapidly expanding Southwest Gas service territories and will minimize regulated business risks with the diversified geographical exposure of five states," said Maffie in a statement.

ONEOK's strong balance sheet, combined with the rapidly expanding southwestern markets controlled by Southwest Gas, will result in a much stronger company, said Buehrer. This is especially important at a time when the utility industry is facing competition for the first time.

"It puts us in a better position in a competitive marketplace," explained Buehrer.

"We are excited about the opportunities this merger provides for the employees and customers of ONEOK and Southwest Gas," said Larry Brummett, chairman and chief executive of ONEOK, in a statement. "ONEOK has demonstrated its ability to profitably merge gas distribution operations, while enhancing service to customers and opportunities for employees."

Brummett also said the deal will benefit shareholders.

Southwest Gas will operate as a division of ONEOK, retaining its name in local markets.

"The merger is not expected to result in employee layoffs, and we would expect future employee adjustments to be the result of attrition and/or voluntary separation," said Brummett.

In addition to Maffie's departure, George Biehl, Southwest Gas' chief financial officer, will become Chief Administrative Officer of the division. Three Southwest Gas board members, who have not yet been identified, will join ONEOK's board. Southwest's board will remain intact as an advisory board, said Buehrer.

Other than those changes, Southwest Gas' headquarters and staff will remain intact and in Las Vegas, said Buehrer.

ONEOK's offering price of $28.50 is a 20 percent premium on Southwest Gas' Monday closing price of $23.75. Buehrer declined to say whether ONEOK will increase rates to pay the premium.

"How that cash transaction will transpire, I don't know," said Buehrer.

Fred Schmidt, the state Consumer Advocate, said ONEOK has a reputation for charging "fairly reasonable rates."

Southwest Gas shares closed down 63 cents Monday. ONEOK was up 25 cents to $33.50. The merger was announced after the market closed.

Southwest Gas provides natural gas to 1.2 million customers. The company has 2,447 employees. In 1997, Southwest Gas earned $16.5 million, or 61 cents per share, on revenues of $732 million.

ONEOK, with 3,211 employees, earned $74.8 million, or $2.23 per share, on revenues of $1.8 billion in the fiscal year that ended August 31.

ONEOK's predecessor, Oklahoma Natural Gas Co., was founded in 1906. In 1997, it acquired the gas business of Western Resources Inc., a Topeka, Kan. utility company. In exchange, Western Resources took a 45 percent equity interest in ONEOK. Western Resources remains ONEOK's biggest shareholder.

Schmidt said his office will study the merger carefully.

"They will be required to obtain a determination that the merger is in the public interest," said Schmidt.

Schmidt will forward his determination to the Public Utilities Commission, which has final say over the merger.

Schmidt said he is not surprised by the deal.

"We are not surprised by this merger," said Schmidt. "It's simply part of a growing trend in the utility industry."

The PUC is currently studying another big utility merger between Las Vegas' electricity company, Nevada Power Co., and Sierra Pacific Resources Inc. of Reno.