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War of Words over Southwest-Oneok Merger Heats Up

War of Words over Southwest-Oneok Merger Heats Up

The war of words over the controversial Southwest Gas Corp.-Oneok Inc. union escalated last week. It began with Chairman Carl J. Kunasek of the Arizona Corporation Commission (ACC) firing off letters to the two merger partners asking them to agree to let Southern Union (SU), the unsuccessful suitor for Southwest Gas, intervene in the ACC proceedings involving the proposed merger. Both Southwest Gas and Oneok not only objected to the chairman's request, but also challenged Southern Union to prove "once and for all" its allegations that ACC officials - at the request of Oneok - illegally influenced Southwest's choice of merger partner.

If they agreed to the chairman's request, the two companies pointed out they would be in violation of the federal injunction obtained by Oneok barring Southern Union from interfering in the Southwest Gas-Oneok merger proceedings. But absent their consent, Kunasek indicated he might put the merger on hold until the commission could "fully evaluate Oneok's fitness" as a merger partner in light of all the controversy. Oneok denied all allegations.

In a letter to Kunasek last week, Southwest Gas President CEO Michael O. Maffie characterized Southern Union as "a rejected suitor engaged in a scorched earth campaign to undo this business deal [with Oneok] at virtually any cost.... It is unreasonable and unwarranted to allow SU to use the Commission's proceedings to accomplish what it has failed to do in three courts, through legitimate business proceedings in the marketplace and in Southwest's board room." Southern Union has initiated action in three different courts to block the Southwest Gas-Oneok union, but so far has been unsuccessful.

In a related letter to the commission, attorneys for Southwest Gas said they feared that Southern Union if allowed to intervene in the ACC proceedings would use the forum to "delay, obfuscate and confuse" for the sole purpose of "sabotaging the Southwest/Oneok merger." They cited three reasons why the Las Vegas, NV-based LDC couldn't agree to Kunasek's request: its legal obligations to its shareholders and Oneok; court orders restricting Southwest Gas' ability to agree to the request, and Southern Union's conduct in connection with this matter.

Southwest's attorneys suggested that Southern Union be required to disclose immediately "any evidence that it has of any impropriety" connected to the merger, but without extending to the company intervenor status. "If necessary, the commission could propound written questions to Southern Union, as it did to Oneok. If Southern Union complies, the commission will have additional information that it may consider...without delay."

An administrative law judge (ALJ) at the Arizona commission is expected to hold a hearing on the proposed Southwest-Oneok union on Tuesday (Sept. 1) in Phoenix, AZ. The three-member ACC will likely vote on up the merger either in late September or early October. But that's "provided I am convinced that no abuse of regulatory process has occurred," said Kunasek.

The Commission had been scheduled to take up the merger in July, but it tabled it when Southern Union filed a civil lawsuit in Arizona accusing Southwest Gas, Oneok and then-Chairman Jim Irvin of the ACC of conspiring to prevent Southern Union from taking its merger proposal directly to Southwest's shareholders. This, in turn, prompted a criminal investigation by the FBI, the U.S. Attorney's Office and the Maricopa County (AZ) Attorney's Office, and has successfully stalled the ACC's approval of the merger (See NGI, Aug. 23, 1999).

Southern Union of Austin, TX, turned to the courts after it lost out to Oneok, a Tulsa, OK-based LDC, in a fierce bidding war for Southwest Gas - which serves customers in parts of Arizona, Nevada and California. Last December, Southwest Gas chose Oneok as a merger partner, even though Southern Union bid higher for the company. Southwest Gas' board of directors at the time expressed doubts about whether Southern Union could finance the deal and obtain the needed regulatory approvals.

Both Southwest and Oneok threw down the gauntlet last week, challenging Southern Union to present evidence once and for all to support its allegations that Oneok conspired with others to illegally influence Southwest Gas in its choice of merger partner.

"Oneok has now been asked several times to provide information to rebut charges based on innuendo and conjecture. We suggest it is time to ask the source of the innuendo and conjecture, Southern Union, to provide promptly - we suggest by this Friday [Aug. 27th] - any reliable or credible evidence it has to support its accusations," wrote Michael M. Grant, an outside attorney for Oneok in Arizona, in an Aug. 25th letter to ACC Chairman Kunasek. Separately, Southwest Gas' Maffie said Arizona regulators need to ask Southern Union "where's the beef?"

The Oneok and Southwest letters were in response to earlier correspondence from Kunasek in which he said he had "real concerns...about whether the parties to the proposed transaction have been honest and forthcoming in their answers to my questions about the events leading up to the Oneok/Southwest filing" with the ACC. The proposed merger is pending before regulators in both Arizona and California. It already has been approved in Nevada..

Susan Parker, John Norris

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
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