Oneok’s proposed merger with Southwest Gas received a big shotin the arm yesterday, as the Nevada Public Utilities Commission(PUCN) unanimously approved the deal two months ahead of schedule.Although approval is still needed from Arizona and Californiaregulators as well as Southwest Gas shareholders, both companiesare confident the merger will be completed in the previouslyannounced fourth quarter 1999 timeframe.

“Nevada’s utility regulators have carefully scrutinized ourmerger proposal and determined that it serves the public interest,”said Michael Maffie, CEO of Southwest Gas. “This is the first ofthree state utility regulatory approvals that we must obtain beforewe can complete the combination of our two companies. We expectthat Nevada’s endorsement of our merger will set the tone forregulatory consideration by the Arizona Corporations Commission(ACC) and California Public Utilities Commission.” The mergeralready has been cleared by the SEC.

Oneok and Southwest first agreed to a deal last December (SeeDaily GPI, Dec. 16). The combined company will be the primary gasdistribution company in Arizona, Kansas, Nevada and Oklahoma andwill also have a strong presence in California. It will also be thenation’s largest gas distribution company, serving 2.6 millionpeople.

A Southwest Gas spokesperson, who wished to remain anonymous,said the merger’s easy passage of its first regulatory approvalaffirms the company’s choice to join with Oneok instead of SouthernUnion, a Missouri-based utility that made a competing offer forOneok last February. Southwest turned Southern Union down in lateApril (See Daily GPI, April 27, 1999).

“When we rejected Southern Union,” the spokesperson said, “oneof the main reasons was that our board believed a SouthwestGas/Southern Union combination would not proceed through theregulatory process without experiencing delays and caveats to theagreement. As you can see from the Nevada results, the Oneok dealoffers smooth regulatory sailing.”

One of the main attractions of a combined Oneok and SouthwestGas company is the mix of Oneok’s strong balance sheet withSouthwest’s growth and capital expenditure program. “In order togrow, Southwest Gas has become highly leveraged,” the spokespersonexplained. “Oneok has the balance sheet to improve our debt rating.In fact, one of the stipulations in the merger agreement is thatOneok must help Southwest raise its debt rating from a triple B- toa triple B+. Southern Union is also a heavily leveraged company,and our board didn’t think they would be able to help out with ourdebt as much as Oneok.”

Southwest and Oneok will tackle the Arizona commission next, thespokesperson said. There is dialogue between the merging companiesand the ACC, but no schedule has been set.

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