Largest shareholder lobbies for control of Southwest Gas board

David Strow

Tuesday, March 7, 2000 | 10:59 a.m.

Following the failed $1.8 billion merger between Southwest Gas Corp. and an Oklahoma natural gas company, the Las Vegas utility's largest shareholder is launching an attempt to take over the company's board of directors.

In a filing with the Securities and Exchange Commission, prominent New York investor Mario Gabelli said he will nominate at least six new individuals to Southwest's board of directors at its annual meeting in May. Since Southwest's board has 11 members, such a move would put Gabelli's nominees in control of the board.

In an interview with the Sun, Gabelli said he isn't trying to fight Southwest's management; rather, he said, he's trying to provide direction to the struggling company. And one thing he's pressing for is settlement of a web of lawsuits involving Southwest and its two former suitors, ONEOK Inc. of Tulsa and Southern Union Co. of Austin, Texas.

"We basically want to help management keep their eye focused on the same goal we believe all shareholders are interested in -- maximizing shareholder value," Gabelli said. "My philosophy is not to fight management. I'm for shareholders. I believe a little bit of direction always helps people march toward the same goalpost."

Still, Gabelli voiced his displeasure with the company's executives.

"They've made some strange decisions over the last five years ... it's been terrible," Gabelli said. "(Now) they're trying to hide in a smoke-filled room. I don't like that."

Through several funds, Gabelli controls 3.08 million shares of Southwest -- just under 10 percent of the company.

"Mr. Gabelli has the same rights as any other Southwest Gas shareholder, which includes the right to nominate directors from the floor of the annual meeting, and to vote his shares as he so chooses," said Southwest spokesman Lew Phelps. The company declined further comment.

During Southwest's long courtship by ONEOK, Gabelli emerged as one of the fiercest critics of ONEOK's offer of $30 per share for Southwest. Gabelli had voiced his displeasure that the Southwest board had rejected a $33.50 bid by Southern Union -- and voted his shares against the merger during last year's shareholder meeting. Gabelli stated at the time that he believed the shares were worth more than $40 apiece.

Southern Union later sued ONEOK and Southwest, alleging the companies had manipulated the regulatory approval process in Arizona in an attempt to derail the Southern Union offer. Southwest's hopes of winning approval for the merger in that state began fading in the wake of that lawsuit, as Arizona regulators uncovered evidence of potentially improper dealings between ONEOK and former Arizona Corporation Commission Executive Secretary Jack Rose.

In January, the staff of the ACC came out against approving the merger, citing concerns over ONEOK's activities in Arizona. ONEOK pulled out of the merger just days later, citing concerns over Southwest's potential liabilities in the Southern Union lawsuit. Southwest responded by suing ONEOK and Southern Union for fraud and breach of contract.

In the wake of the failed merger, Southwest's stock slid to a 52-week low of $17.06. On Monday, it closed at $19, up 94 cents.

On Friday, Gabelli said he still believes Southwest's stock would be worth at least double its current trading value in an acquisition -- suggesting an offer higher than either ONEOK or Southern Union was willing to pay. The only way the company will be able to achieve that, he said, is by trying to settle the web of lawsuits with ONEOK and Southern Union.

"We've got lawsuits against ONEOK, Southern Union ... they don't know how to get out of it," Gabelli said. "Management can't just say, 'We want to go to war.' Make love, not war.

"The best way to settle is to be tough. ONEOK has their own set of issues to deal with, and George Lindemann (chairman of Southern Union) came on board to get the most money for shareholders."

Gabelli said he hasn't discussed his plans to nominate new directors with any other company shareholders, and has no plans to begin lobbying in favor of the new directors through a proxy fight.

"Shareholders are smart enough to make up their own minds," Gabelli said. "Once you put the information into the free market system, that's all you need. All we want to do is say, 'There's a choice.' "