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Southern Union Tops ONEOK Offer For Southwest

Southern Union Tops ONEOK Offer For Southwest

It's funny how an extra hundred million dollars will get your attention. That's what the board of directors of Southwest Gas Corp. have to contend with in the form of an unsolicited proposal from Southern Union Co., after they already had signed off on an offer from ONEOK Inc.

Southern Union jumped into the game last week, offering to acquire Southwest Gas for $32/share in cash ($973 million), a price $3.50/share higher than ONEOK's cash offer - approved by the board last December - of $28.50/share ($867 million). (see NGI Dec. 21, 1998) Southern Union is beginning due diligence for the possible merger. The transaction would be accounted for as a purchase and Southern Union expects it would be immediately accretive to cash flow.

A combination with Southwest Gas of Las Vegas, NV, would make Austin, TX-based Southern Union the nation's largest gas-only distribution company, increasing Southern Union's customer base by 1.2 million customers, to total more than 2.2 million customers." Southern Union serves customers in Texas, Missouri, Florida, and Mexico. Southwest Gas serves customers in Nevada, Arizona, and California.

George L. Lindemann, Southern Union CEO, said, "A combination of Southwest Gas and Southern Union is an excellent opportunity for shareholders, employees and customers of both companies. Southwest Gas shareholders would receive a significant premium for their investment over Southwest's pending merger agreement with ONEOK. Additionally, we believe that Southwest's rapidly growing customer base combined with Southern Union's experience as one of the most cost-effective operators in the industry would create significant value for shareholders."

Under the proposal, Southwest Gas would operate as the Southwest Gas Division of Southern Union, headquartered in Las Vegas, and retain its name in the local markets it serves. In addition, three Southwest Gas board members would be invited to join Southern Union's board. The remaining Southwest Gas board members would be invited to serve on an advisory board for the Southwest Gas Division.

Under terms of the agreement with ONEOK, as a result of certain preliminary determinations made by the board of directors of Southwest Gas, the Southwest Gas board has authorized management to commence substantive discussions with Southern Union regarding its proposal. The merger agreement with ONEOK remains in full force and effect, and based on the information currently available to it, the board of Southwest Gas has not altered its recommendation regarding the merger agreement with ONEOK.

In a news release, ONEOK CEO Larry Brummett said, "Obviously, we were surprised by the Southern Union offer. We based our offer on due diligence, consultation with investment advisors and sound business judgment. We believe our offer is fair, competitive and still valid."

Both Southern Union and Southwest Gas said they would not comment further until an agreement is reached or negotiations are terminated.

Joe Fisher, Houston

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