Oneok increased its offer to acquire Southwest Gas by $1.50Monday, winning the Southwest Gas board of directors’ approval anddefeating an unsolicited bid from Austin, TX-based Southern UnionCo. The new monetary total of the merger is $1.8 billion or$30/share of common Southwest Gas stock. Southern Union had acompeting, unsolicited bid for Southwest of $32/share on the table,but Southwest had reservations concerning Southern Union’stimetable for the deal’s completion.

The combined company will be the primary gas distributioncompany in Arizona, Kansas, Nevada and Oklahoma and will also havea strong presence in California. It will also be the nation’slargest gas distribution company, serving 2.6 million people.

For Southwest, the deciding factor was that Oneok’s offerpossessed a smaller amount of potential regulatory hang-ups. Oneokdoes not have to receive approval from any state regulators whileSouthern Union would need state approval in Missouri, Florida andfrom the states where Southwest currently operates.

“The fact is, the longer the elapsed time for consummation, thegreater the uncertainties associated with Southern Union raisingthe capital to fund the purchase,” said Southwest CEO MichaelMaffie. Oneok said the deal would be closed by the year’s end whileSouthern Union said it could close the transaction in 18 months.Questions were also raised about Southern Union’s ability tofinance future growth, Southwest said.

“The Oneok-Southwest combination is the transaction that bestserves shareholders because it makes strategic sense – combiningthe financial strength of Oneok with Southwest Gas, the country’sfastest growing gas-distribution utility – and because we believeit can be completed in a timely fashion.” Maffie added.

Southern Union, a gas distribution company in Texas and Missouri,filed its unsolicited bid in late February (See Daily GPI, Feb. 23). “We are evaluating ouroptions at this point,” George Yanowski, a Southern union spokesman,said. “Beyond that, we aren’t commenting at all.”

Oneok and Southwest first agreed to a deal last December (See Daily GPI, Dec. 16). The terms of thetransaction call for three Southwest Gas board members to join Oneok’sboard filling a current vacancy and two positions that will be vacateddue to retirements in 1999. Southwest Gas will operate as a divisionof Oneok Inc. and will retain its name in the local markets itserves. It is expected to be accounted for using the purchase methodand is expected to close during the fall of 1999. Southwest Gasprovides gas to about 1.2 million customers in Arizona, Nevada andCalifornia.

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