Southwest Gas Corp. sued over merger

Wednesday, May 5, 1999 | 10:19 a.m.

Southwest Gas Corp. of Las Vegas on Tuesday said its board of directors rejected Southern Union Co.'s sweetened $33.50 takeover bid and instead agreed to be acquired by ONEOK Inc. of Tulsa, Okla., for $30 per share, or $1.8 billion.

But Austin, Texas-based Southern Union said it joined a shareholder lawsuit in a San Diego Court in hopes of forcing Southwest Gas to accept its higher offer or to let shareholders decide the issue themselves.

Southern Union charged Southwest management's "overriding goal is to protect their own futures" if the company is acquired.

Southwest management did not bargain in good faith when presented with Southern's "clearly superior, all-cash offer," Southern said.

Southern Union is asking the San Diego County Superior Court to issue a restraining order to prevent Southwest and ONEOK from merging. Southern Union also is seeking compensatory and punitive damages.

"Now it is time to let the shareholders themselves -- not the board -- decide what is in their best interests," said Southern Chief Executive George Lindemann. "There is no question that Southern Union has the financial resources and the commitment to complete this transaction expeditiously." ONEOK had offered $28.50 a share for Southwest in December, which Southwest accepted and which Southern Union topped in February with an unsolicited $32 bid. Last week, Southwest accepted ONEOK's higher offer of $30. Southern Union then raised its offer a day later.

In a statement, Southwest Chief Executive Michael Maffie said, "Our board carefully considered the recently revised proposal from Southern Union, and concluded that shareholders of Southwest Gas are best served by proceeding with our agreement with ONEOK."

"The board recognized that a potential combination with Southern Union faces significant regulatory obstacles," Maffie said. "Given the highly leveraged capital structure of both Southwest Gas and Southern Union, combined with the regulatory difficulties faced by Southern Union in other states, the board concluded that obtaining regulatory approval, with achievable and acceptable conditions, is far too unlikely to justify abrogation of our existing agreement with ONEOK in favor of the Southern Union bid.

"The board recognized that the $33.50 per share price offered by Southern Union does not provide adequate compensation for the regulatory uncertainty. Indeed, the capital structure of a hypothetical Southwest Gas-Southern Union combination is further weakened by the higher price, increasing the odds of regulatory failure," he said. "A higher price for a deal that is unlikely to succeed does not provide the best value for our shareholders."

The Southwest Gas board concluded ONEOK should be able to obtain all regulatory approvals and close its purchase of Southwest Gas prior to year-end, while it believes that Southern Union would require at least 18 months to obtain regulatory review.

"As I have said before, the uncertainties associated with Southern Union's ability to raise the debt and equity to fund this purchase increase with the amount of time before consummation," Maffie said.

"Careful review of the regulatory outlook for a combination with Southern Union in all relevant states, founded on the analysis and advice of regulatory experts in each state, including former commissioners of utility regulators in several states, played a key role in the board's decision," Maffie said.

Southwest Gas sells natural gas to 1.2 million customers in the fast-growing markets of Nevada, Arizona and California. Southern Union has about 1 million gas customers in Texas, Missouri, Florida and Mexico. ONEOK sells gas to 1.4 million customers in Oklahoma and Kansas.