Investor Gabelli agitating again at Southwest Gas

Thursday, May 10, 2001 | 10:46 a.m.

SUN STAFF AND WIRE REPORTS

On the eve of today's Southwest Gas Corp. shareholder meeting in Las Vegas, investor Mario Gabelli has revealed that a group he leads has increased its stake in the natural gas utility and is eyeing representation on the company's board.

"I just want to bring some common sense to the board," Gabelli told Dow Jones Newswires Wednesday.

Las Vegas-based Southwest, long considered a takeover candidate, has been mired in litigation that stemmed from a failed sale a year ago. Gabelli wants to put the litigation to rest.

His investor group owns about 9.65 percent of Southwest, according to a filing with the Securities and Exchange Commission Wednesday.

The group will nominate Nevada attorney Michael Melarkey for election today at the company's annual shareholder meeting. Last year Gabelli nominee Mark Feldman, a New York attorney, was elected to the board.

Southwest has nominated its current 11-member board for re-election, including Feldman. Feldman is the president and chief executive of Cold Spring Group Inc.

Under the company's bylaws, the 11 candidates with a plurality of the votes win. Shareholders may divide their votes if the company is notified of this intention prior to the voting.

Although the Gabelli group has reserved this right, Gabelli wouldn't comment on how the group will vote today.

Southwest's troubles began after it agreed to be acquired by ONEOK Inc., a Tulsa, Okla., gas company, in December 1998 for $1.8 billion. Southern Union, of Austin, Texas, launched an unsolicited bid in 1999, but Southwest Gas turned down its final offer.

Lawsuits were filed among the three companies and the ONEOK and Southwest deal fell apart amid allegations of wrongdoing in the Arizona regulatory approval process by ONEOK and Southwest operatives.

According to Edward Jones analyst Brian Youngberg, the parties remain so far apart there is little hope for a settlement of the outstanding lawsuits. Instead, the litigation will need to work itself through the courts.

So far, Southwest shares, which closed unchanged at $20.96 Wednesday, have held up well given the uncertainty created by the lawsuit, Youngberg said. However, the stock is below what shareholders could receive if the company was acquired.

In the bidding war between Oneok and Southern Union, Oneok had offered $30 a share and later increased that to $32 per share, and Southern Union had offered $33.50 a share. In January, Gabelli told Barron's that he believes Southwest can fetch as much as $35 a share from a bidder.

"Once the litigation is out of the way, Southwest is gone," Gabelli said.

Youngberg agrees. Southwest has one of the highest growth rates of any local gas distribution companies in the United States, he said, adding that the company serves a very attractive and growing market.

Still, with the overhang of the lawsuits, Youngberg has a "hold" rating on the stock. He doubts any prospective suitor would find Southwest attractive with the pending litigation.

On Wednesday, Gabelli said the company wanted the sale, and he wants to eliminate the overhang of the litigation.

Southwest shareholders today approved a proposal brought by a Southwest employee to eliminate the company's shareholder rights plan, which is a measure that makes a takeover more difficult.

Southwest management had advised shareholders to vote against the measure.

Approval of the proposal required a vote by a majority of the shares voted at the meeting.

Southwest officials this morning declined comment on the shareholder proposals, saying they would talk after the meeting. Southwest shares this morning were up 18 cents in advance of the meeting.