LV gas executive mum on failed merger, touts growth

Phil Levine

Friday, May 12, 2000 | 10:56 a.m.

There was a stark contrast between the sombre mood inside and the raucous atmosphere outside Southwest Gas Corp.'s annual shareholder meeting in Las Vegas Thursday.

Inside Southwest's corporate headquarters, company executives attempted to reassure about 100 shareholders that a recent merger failure, several lawsuits and an ongoing labor dispute would not impede future growth.

Meanwhile, dozens of members of the International Brotherhood of Electrical Workers union marched outside as a loudspeaker blasted rock music.

Under the banner of the "Campaign for Justice at Southwest Gas," IBEW members shouted slogans accusing the company of violating labor laws and wasting taxpayer and consumer money in a prolonged legal battle.

The labor dispute stems from a contentious May 1999 vote in Arizona in which Southwest employees in that state voted by a narrow margin to join the IBEW.

However, the most tangible result from the company's failed $1.8 billion merger with Tulsa, Okla.-based ONEOK Inc. was Thursday's election of Mark Feldman as a new board member.

Feldman is president and chief executive officer of New York-based Cold Spring Group Inc. He replaces board member Robert Sundt, who retired.

Feldman was one of three nominees put forward by Mario Gabelli, Southwest Gas' largest stockholder. Gabelli did not attend the meeting, but his 10 percent ownership of the company's stock helped ensure Feldman's appointment to the 11-person board.

Gabelli was one of the fiercest critics of Southwest's proposed merger with ONEOK.

In his address to the shareholders, Southwest Chief Executive Officer Michael Maffie apologized for the music and commotion that greeted them outside the meeting.

"As I was walking in, I felt a little like I was in seventh grade and going to the sock-hop," he said.

On a more serious note, Maffie said the company's senior management was "tremendously disappointed" about ONEOK's decision to cancel the merger.

In announcing the merger's cancellation, ONEOK's Chief Executive Larry Brummett said there was "too much financial risk" involved in proceeding with the union.

ONEOK's application to acquire Southwest stalled in Arizona following allegations of wrongdoing involving ONEOK, Southwest and several Arizona regulatory officials.

Several lawsuits involving Southwest, ONEOK and spurned Southwest merger partner Southern Union Co. ensued in the wake of the merger's failure. The lawsuits are all currently in discovery in Arizona federal court.

Maffie sounded a note of confidence as to his company's chances for successful resolution of the merger-related litigation.

"We will continue to persevere and work to optimize recovery of the damages (from the merger failure)," he told shareholders. "We view those damages as a contingent asset of the company.

"We believe our claims are strong, and are confident we will prevail."

In its labor battle with the IBEW, Southwest alleges the union used scare tactics -- including dire warnings about the potential consequences from the aborted ONEOK merger -- to convince workers to vote for certification.

The IBEW disputes that charge, and the National Labor Relations Board has ruled in favor of the union. The matter is now under appeal in federal court in Arizona.

"We believe the company's breaking the law, and is wasting taxpayers' and shareholders' money by fighting its workers," said union representative Sean Cunniff.

Questions about the labor dispute and failed merger were raised during a question and answer period at Thursday's meeting.

However, Maffie and other board members did not respond to numerous questions, citing pending litigation.

When asked by several audience members about the company's decision to choose ONEOK's lower merger bid over Southern Union, Maffie repeatedly referred shareholders to last year's proxy statement.

"There's really nothing I can add to that statement," he said.

Several shareholders expressed bitterness over the merger's failure.

"All I can say is that I know it's in litigation and I hope you lose," said shareholder Audrey Polanski.

Maffie was less reticent to discuss the company's growth.

"We are the No. 1 gas utility in terms of customer growth," he said. "We have sustained between 5 and 6 percent growth for the last six years.

Maffie said Southwest is reaping the benefits of "being perfectly located," serving some of the fastest growing areas in the U.S., including Southern Nevada and central Arizona.

Southwest currently has about 1.3 million customers, one-third of which are based in Southern Nevada.

Last quarter, Southwest reported earnings of $25.2 million or 81 cents per share, down from $28.3 million or 93 cents per share a year earlier. The company attributed the decline to a warmer-than-average winter and a subsequent drop in demand for gas.

Southwest's stock is currently trading at $19 per share, down from a 52-week high of $29.50.

Phil Levine is a business writer for the Sun. He can be reached at (702) 259-4068 or phil@lasvegassun.com.