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Southern Union Takes Southwest to Court

Southern Union Takes Southwest to Court

Southern Union gained permission last week to join an existing lawsuit against Southwest Gas in a last-ditch attempt to overtake Oneok as the winner in the race to merge with Southwest. The lawsuit accuses Southwest Gas' board of directors of refusing to negotiate with Southern Union in good faith. Despite the Southern Union lawsuit filing, Southwest reaffirmed its acceptance of the Oneok offer.

The original lawsuit was filed recently by Southwest shareholders in San Diego County's Superior Court. Southern Union said the original lawsuit accuses the Southwest board of seeking only to protect itself during the past merger negotiations.

In joining the lawsuit, Southern Union is asking the court for permission to directly solicit Southwest's shareholders to oppose the Southwest-Oneok agreement and to support Southern Union's efforts to merge. The suit also asks for a temporary restraining order and a preliminary injunction to stop further progress on the merger between Southwest and Oneok during the course of the litigation. Southern Union has also asked for compensatory and punitive damages.

Southwest accepted Oneok's initial merger offer last November. The boards of both companies signed the deal last week after Oneok sweetened the offer from $866 million to $912 million. Southern Union had offered a hostile bid in February of $32/share and then increased its bid to $33.50/share.

George L. Lindemann, CEO of Southern Union, said, "There is no conceivable business reason for the management and board of Southwest to reject our offer. I believe Southwest's shareholders deserve the right to be heard on our offer, which provides them more than $108 million in additional value. Now it is time to let the shareholders themselves -- not the board -- decide what is in their best interests."

The lawsuit also alleges that Southwest Gas induced Southern Union to sign a standstill agreement before their negotiations started, preventing Southern Union from openly soliciting Southwest shareholder approval for its proposal. The standstill agreement was enforced on April 30.

"Southwest tried to use the courts [by enforcing the standstill agreement] in an attempt to keep us from speaking directly to their shareholders" Lindemann said. "Why are they afraid to let their own shareholders hear both sides of the story? Why not let them make up their own minds?"

Lindemann's plea fell upon deaf ears at Southwest. "The board recognized that a potential combination with Southern Union faces significant regulatory obstacles," Michael Maffie, CEO of Southwest said. "Given the highly leveraged capital structure of both Southwest Gas and Southern Union, combined with the regulatory difficulties faced by Southern Union in other states, the board concluded that obtaining regulatory approval, with achievable and acceptable conditions, is far too unlikely to justify abrogation of our existing agreement with Oneok in favor of the Southern Union bid."

In related news, Southwest Gas, which provides gas to about 1.2 million customers in Arizona, Nevada and California earned a net income of $28.3 million in the first quarter of 1999, which was down $7.7 million from the same period in 1998. Maffie said the results were in line with expectations.

"The impact of weather was offset by customer growth, rate design improvements, lower financing costs and contributions from our construction services subsidiary. However, the positive first quarter results were overshadowed by the record earnings achieved in the first quarter of 1998, when weather conditions were colder than normal."

John Norris

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ISSN © 2577-9877 | ISSN © 1532-1266
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