Southwest Gas executive gives litigation a twist

David Strow

Tuesday, Jan. 9, 2001 | 11:07 a.m.

Southwest Gas Corp.'s legal battles took a bizarre turn Monday, when a spurned company suitor revealed a top Southwest executive posted numerous anonymous messages to an Internet stock board in an attempt to sway stockholders.

Thomas Sheets, Southwest's general counsel, apparently posted the messages last March on a Southwest Gas message board operated by Yahoo! under four pseudonyms. Sheets also posted messages to message boards for ONEOK and Southern Union shareholders, Southern Union said.

At the time of the postings, Southwest was embroiled in lawsuits with both companies over a failed merger with ONEOK. Those lawsuits are still pending.

An attorney representing Southwest acknowledged this morning that Sheets had made postings to the Yahoo! board, but said the company plans to take no action against Sheets at this time.

"Southwest believes the Southern Union claims against them are without merits, and references to Sheets and these postings do not support otherwise meritless claims," said Michael O'Connor. "We do not believe they are in any way substantial or significant to litigation."

Not surprisingly, Southern Union took a different view.

"This apparent coordinated effort by Southwest Gas in the middle of litigation with its own shareholders and with Southern Union, as well as in the face of ongoing criminal investigations, further underscores our claims," said Southern Union President and Chief Operating Officer Peter Kelley.

Southwest had hoped to merge with ONEOK in a $1.8 billion deal, but the transaction fell apart one year ago after ONEOK pulled out of the deal in the face of growing indications that the deal would not be approved by the Arizona Corporation Commission. The ACC's chairman had expressed concern that ONEOK had collaborated with ACC officials in an effort to derail Southern Union's hostile counterbid for Southwest -- charges that came to light during the investigation of a lawsuit by Southern Union against Southwest and ONEOK.

Both ONEOK and Southwest later countersued Southern Union, and ONEOK and Southwest have pending lawsuits against each other over their failed merger.

In the Sheets postings, Sheets appears to be probing for information, but words his questions to attack both Southern Union and ONEOK.

"Why is the P/E ratio on this stock (Southern Union) so out of whack compared to any other local gas distribution company? Shouldn't this really be a $9 to $10 a share stock?" Sheets wrote on Southern Union's message board; at the time, Southern Union traded at around $15 per share.

"Anybody know what's happening with the law enforcement investigation in Phoenix relative to (ONEOK)? Is it true that the (ACC) found (ONEOK) and its people to be untrustworthy?" Sheets wrote in a posting to the ONEOK board.

And on Southwest's board, Sheets wrote that Southwest "is the victim here, management, the company, the board and the shareholders."

"The (Southern Union) boys apparently did a lot of communicating with at least one dysfunctional regulator and his aide down in Arizona," Sheets wrote. "Thank goodness that (Southwest) is taking steps against (Southern Union) and (ONEOK) to protect our interests ..."

In a deposition, Southern Union said, Sheets acknowledged making the posts, referring to it as a "20-day crook in my personal road ... I went nuts."

Southern Union also said numerous postings were made by Elizabeth Howell, identified by Southwest as a Southwest public affairs official in Arizona. Howell's messages also attacked ONEOK and Southern Union and defended Southwest's actions.

"The people who are really responsible ... for screwing up this merger are (ONEOK) for having so little sense about how to deal with the (ACC), the commission for not being able to put their political differences behind them, and (Southern Union) for practicing management by litigation," Howell wrote.

O'Connor said Howell was not authorized to speak for the company.

Monday's revelations aren't the first time Southwest officials have been accused of using the Yahoo message board to surreptitiously communicate with shareholders. In August 1999, Southern Union claimed officials with public relations firm Sitrick & Co. made posts urging Southwest shareholders to vote for ONEOK's offer and raising doubts about Southern Union's ability to complete a deal. The posts were made just days before Southwest shareholders voted to approve ONEOK's offer.