Racketeering suit filed to block utility merger

David Strow

Tuesday, July 20, 1999 | 11:11 a.m.

In a last-ditch effort to stop the merger of Southwest Gas Corp. of Las Vegas and ONEOK Inc., rival Southern Union filed a federal racketeering and fraud lawsuit Monday against Southwest, ONEOK and two Arizona regulators.

The lawsuit, filed in U.S. District Court in Phoenix, alleges that Arizona Corporation Commission member Jim Irvin and former executive secretary Jack Rose conspired to block Southern Union's attempt to acquire Southwest. The lawsuit demands $750 million in damages, as well as the lifting of the "standstill agreement" that blocks Southern Union from presenting its case directly to Southwest's shareholders.

Also named as defendants were four ONEOK and Southwest executives, including Southwest CEO Michael Maffie. Southern Union leveled charges of breach of contract and securities fraud against Southwest.

Southwest branded the lawsuit as a "frantic and desperate attempt to inject life back into a dying business proposal."

"This lawsuit grossly misrepresents facts at every step in the process, makes allegations that are without merit or factual basis, and viciously assaults numerous public servants and business leaders," Southwest said in a statement. "We fully expect to prevail."

In April Southwest accepted ONEOK's merger offer of $30 per share. Southwest, a Las Vegas-based utility serving portions of Nevada, Arizona and California, rejected Southern Union's unsolicited offers that ultimately reached $33.50 per share.

If the $1.8 billion deal goes through, ONEOK would become the nation's largest stand-alone gas distribution company. It would provide service to 2.6 million customers in five states.

Zach Wagner, an analyst with Edward Jones in St. Louis, believes the lawsuit has virtually no chance of stopping the merger.

"Based on what I've seen and read, this has no impact on the merger between Southwest and ONEOK," Wagner said. "The board of Southwest Gas has done its fiduciary duty for Southwest shareholders, and looked very carefully at the fundamentals of the Southern Union offer. Frankly, I fail to see how this action by Southern Union will change the minds of Southwest's board of directors.

"The stock market is waving this off."

The suit alleges that Irvin and Rose improperly tried to persuade utility regulators in Nevada and California to send letters to Southwest's board of directors expressing regulatory concerns about an acquisition by Southern Union.

Don Soderberg, chairman of the Nevada Public Utilities Commission, said he never talked with Irvin about Southern Union or Southwest.

"I don't even recall ever meeting him," Soderberg said.

Rose had resigned his commission post in August, saying he did so because the political infighting among the commissioners made his post untenable. Later he was retained by ONEOK but led people to believe he was still working for the Arizona agency, the suit states.

When California and Nevada regulators balked at the alleged Irvin-Rose request, Irvin sent a letter to the utility's board that outlined regulatory concerns about Southern Union and improperly indicated regulators in Nevada and California shared those concerns, the suit says.

The lawsuit also alleges that Irvin's letter appeared to speak on behalf of the entire commission when in fact the other two commissioners were unaware of it.

That letter was a key element in influencing Southwest's board to accept ONEOK's offer over Southern Union's, the lawsuit claims.

Irvin and ONEOK executives could not be reached for comment.

The lawsuit also alleged that Southwest made repeated untrue statements about Southern Union in proxies and press releases.

Southwest said that a merger with Southern Union would face huge regulatory obstacles, and rejected Southern Union's higher offer partly on that basis. Regulators in Arizona and Nevada have already approved the merger with ONEOK, which is scheduled to close by year's end.

The Associated Press

contributed to this report.