Former merger partner wants damages from Southwest Gas

David Strow

Monday, Aug. 28, 2000 | 10:58 a.m.

Executive dies

ONEOK Inc. announced the death of Larry Brummett, chairman and chief executive, of cancer at age 49.

Brummett became chairman and chief executive of ONEOK in 1994 and is credited with transforming ONEOK from a local natural gas utility with assets of about $1 billion to a diversified natural gas company with assets of more than $5 billion.

Southwest Gas Corp.'s former merger partner is now demanding monetary damages from the Las Vegas natural gas company, accusing it of intentionally withholding critical information during their merger negotiations.

The new claims came in an amended lawsuit filed by ONEOK Inc. last week in an Oklahoma federal court. In this lawsuit, ONEOK is now demanding damages in excess of $75,000 for fraudulent inducement and breach of contract.

Tulsa, Okla.-based ONEOK called off plans to acquire Southwest Gas in January. ONEOK had offered $30 per share, or $1.8 billion, but said "financial risk" associated with Southwest Gas forced it to call off the merger.

As with a string of lawsuits seen before, ONEOK's newest claims center around a regulatory scandal in Arizona that ultimately caused the cancellation of the Southwest Gas-ONEOK merger. ONEOK claims Southwest Gas was aware of the difficult fight that was about to erupt in Arizona, but that the Las Vegas company left ONEOK in the dark in hopes of getting a higher offer for Southwest Gas.

ONEOK claims Southwest officials -- including Chief Executive Michael Maffie -- became aware that two of the three members of the Arizona Corporation Commission had "significant questions and concerns" about the merger as early as April 15, 1999. This was 10 days before ONEOK agreed to raise its initial offer of $28.50 per share to $30 per share, an effort by the company to fend off a rival offer for Southwest by Southern Union Co. of Austin, Texas.

ONEOK claims the information was withheld intentionally "in order to induce ONEOK to pay additional merger consideration."

"In negotiating (the April 25) agreement, Southwest Gas did not disclose the questions and concerns that had been raised by (Arizona officials) ... and ONEOK did not know of those concerns or questions from any other source," the ONEOK lawsuit said. "If those concerns and questions had been reported to ONEOK before the (agreement), ONEOK would have declined to pay more ... until and unless it became satisfied that the concerns and questions did not pose a significant impediment to regulatory approval in Arizona."

These concerns revolved around the activities of ACC member Jim Irvin and former ACC Executive Secretary Jack Rose. The two are accused of lobbying Southwest Gas board members, as well as California and Nevada regulators, to look favorably on a ONEOK-Southwest Gas merger application over a Southern Union offer.

One incident in particular involved a trip by Irvin and Rose to California to meet with the chairman of the California Public Utilities Commission. Irvin and Rose allegedly lobbied for ONEOK at this meeting, raising concerns by both Carl Kunasek, chairman of the Arizona Corporation Commission; and Tony West, former member of the ACC. West and Kunasek also raised concerns about a letter drafted by ONEOK officials for Irvin that implied regulators would look more favorably on a ONEOK offer. After unsuccessfully lobbying Nevada and California officials to sign this letter, Irvin sent the letter with his signature alone to the Southwest Gas board.

In conversations with Southwest Gas officials, ONEOK claims, Kunasek aide Jerry Porter speculated that ONEOK had paid for the Irvin trip to California, an allegation the company denies.

These conversations with West's and Kunasek's offices, ONEOK said in its lawsuit, "were material events with respect to the regulatory process in Arizona that should have been promptly reported to ONEOK by Southwest Gas."

Southwest denied the latest allegations, issuing a statement saying ONEOK's improper actions caused the regulatory concerns in Arizona.

"We are astonished that ONEOK now claims that we should have told it about a problem it already knew about, since ONEOK caused the problem," the Southwest statement said. "ONEOK's characterization of events flies in the face of reality. Southwest Gas categorically denies ONEOK's allegations and looks forward to a resolution of these matters in court, where we expect to prevail."

ONEOK's latest legal claims are the latest developments in a growing tangle of lawsuits involving Southwest Gas, ONEOK and Southern Union over the activities of Irvin and Rose.

Southern Union is suing ONEOK and Southwest Gas and Southwest Gas is suing ONEOK.