Southwest Gas accepts sweetened merger offer

Monday, April 26, 1999 | 4:19 a.m.

Southwest Gas Corp. of Las Vegas said today it accepted a sweetened offer to be acquired for $30 per share, and that it rejected an unsolicited bid of $32.

The Southwest Gas board chose to merge with Tulsa, Okla.-based ONEOK Inc. after ONEOK raised its bid for the gas utility from $28.50 a share to $30 a share, or about $1.8 billion.

In the process, Southwest rejected a surprise bid in February from Southern Union Co., an Austin, Texas, company that is that state's third-largest gas utility.

Southern Union had offered $32 a share for the company -- about $1.85 billion -- but Southwest rejected the proposal because of the chance that the deal would get bogged down in regulatory reviews.

Zach Wagner, a natural gas analyst with Edward Jones & Associates in St. Louis, said the ONEOK deal is the best possible for shareholders and customers, even though Southern Union had the higher price.

"This is a good deal for Southwest Gas customers," Wagner said. "They'll be able to benefit due to better, deeper pockets the company (ONEOK) will have. They'll be able to expand pipelines to new communities faster and they'll be able to handle the financing necessary to complete the merger."

ONEOK's resources should result in the deal closing by Dec. 31 as planned, Wagner said.

The increase in the purchase price to $30 a share was an appropriate response to the Southern Union bid, Wagner said, because the rival company's offer was significantly higher.

"ONEOK had to do something after Southern Union's offer," Wagner said. "I think this new offer should be sufficient to close the transaction."

The analyst played down the role of a $30 million termination fee. Under terms of the initial ONEOK offer, Southwest Gas would be responsible for paying $30 million to ONEOK if the deal collapsed.

When the termination fee was first disclosed in Securities and Exchange Commission documents, State Consumer Advocate Fred Schmidt said Southwest Gas management had a responsibility to its shareholders to investigate the advantages of Southern Union's rival bid, even if it meant paying the $30 million.

Now, Southwest feels it is prepared to move ahead with a ONEOK offer it believes is clearly superior to Southern Union's.

"The fact is, the longer the elapsed time for consummation, the greater the uncertainties associated with Southern Union raising the capital to fund the purchase," Michael Maffie, president and chief executive officer of Southwest Gas, said in a statement issued today.

Maffie said Southern Union would have had to obtain regulatory approvals from the Missouri Public Service Commission and the Florida Public Service Commission in addition to regulatory approvals from the states in which Southwest Gas currently operates: Nevada, Arizona and California.

Southern Union also would have been required to make regulatory filings with the Securities and Exchange Commission.

The ONEOK-Southwest deal would not require regulatory approval in any of the states in which ONEOK operates.

Southern Union had little to say about the rejection of its bid.

"The only thing we're saying is that we're evaluating our alternatives," said George Yankowski, treasurer of Southern Union.

The merger with ONEOK (pronounced one-oak) would create the largest stand-alone gas distribution company in the United States with 2.6 million customers in five states. It would be the primary gas company in Nevada, Arizona, Kansas and Oklahoma as well as a major player in California.

"We are pleased the board of Southwest Gas has chosen to move forward expeditiously with ONEOK's amended offer," Larry Brummett, chairman and chief executive officer of ONEOK, said in a statement issued today. "At $30 per share, we continue to believe this transaction will be accretive to earnings in the first 12 months and will benefit shareholders, customers and employees of both companies."

Southwest has said there would be no major changes in its operations in Las Vegas, including the name of the company and the number of employees. The company would continue to operate as Southwest Gas as a division of ONEOK here.

As proposed by the original agreement, three Southwest Gas board members would join ONEOK's board, expanding the board of directors to 16, 14 of whom would be outside directors.

ONEOK made its initial offer for Southwest in December. Company officials said they hope to complete the transaction by the end of the year.

Southwest Gas provides natural gas to 1.2 million customers and has 2,447 employees.

ONEOK, with 3,211 employees, was the successor to the Oklahoma Natural Gas Co., 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.

"The Oneok-Southwest Gas combination is the transaction that best serves shareholders because it makes strategic sense -- combining the financial strength of Oneok with Southwest Gas, the country's fastest-growing gas-distribution utility -- and because we believe it can be completed in a timely fashion," Maffie said.