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
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