Southwest merger endorsed

David Strow

Friday, July 30, 1999 | 11:17 a.m.

A major advisory and research agent for institutional investors has recommended its clients vote for Southwest Gas Corp.'s proposed $1.8 billion acquisition by ONEOK Inc.

The recommendation was made by Institutional Shareholder Services of Rockville, Md. ISS advises nearly 500 institutional investors, primarily pension plans and investment managers. It also casts proxy votes on behalf of many of its clients.

"This is a very positive endorsement, from an important voice in the institutional investment community," Southwest spokesman Lew Phelps said. "Whether this will change any votes, that's impossible to tell."

In making its recommendation, ISS acknowledged that shareholders might be tempted to hold out for Southern Union Co.'s rival bid of $33.50 per share. ONEOK has offered $30.

"Shareholders naturally want the most money they can get for their shares, but they also need certainty," ISS said. Shareholders had just one choice, the firm claimed -- "to accept the ONEOK deal or no deal at all."

That echoes Southwest's claim that the Southern Union proposal would face too many regulatory obstacles. By contrast, Southwest points out that Nevada has already approved the deal, while California and Arizona are expected to follow in September.

Southwest hopes to close on the deal in the fourth quarter, though lawsuits and a criminal probe of the deal could hinder the transaction. Arizona officials are investigating Southern Union charges that an Arizona regulator improperly intervened in behalf of ONEOK.

It's unclear how many Southwest shareholders are actually clients of ISS. About 50 percent of Southwest's shares are held by institutional investors.

New York investor Mario Gabelli has already announced he will vote his funds' shares against the merger. Gabelli is the largest institutional investor, with 10 percent control.

"Your board's conclusion that the ONEOK transaction was better for shareholders is wrong," Gabelli said in a letter to Michael Maffie, chief executive of Southwest. "My clients prefer a fully financed offer that more than compensates for any bureaucratic delays."

Shareholders are scheduled to vote on the ONEOK offer on Aug. 10 in Las Vegas.