The financial risk associated with a lawsuit against its mergerpartner Southwest Gas forced ONEOK to call off the deal lateFriday.

“We worked very hard to make this deal happen,” said ONEOK CEOLarry Brummett, “but the bottom line is that even if we assume thatall regulatory approvals could be received in a timely manner,there is simply too much financial risk associated with SouthwestGas right now and we have a responsibility to protect ourshareholders from excessive risk.”

Brummett expressed financial concerns about Southwest, citingpending claims against Southwest in a lawsuit filed by SouthernUnion, an Austin, TX, natural gas distributor that made acompeting, unsuccessful bid to acquire Southwest. That lawsuit,filed in July 1999, subsequent to the signing of the mergeragreement, was recently highlighted by Arizona regulatory staff asa reason not to recommend approval of the merger at this time.

Southern Union last year filed a civil lawsuit in Arizonaaccusing Southwest Gas, Oneok and then- ACC Chairman Jim Irvin ofconspiring to prevent Southern Union from taking its mergerproposal directly to Southwest’s shareholders. This, in turn,prompted a criminal investigation by the FBI, the U.S. Attorney’sOffice and the Maricopa County (AZ) Attorney’s Office. SouthernUnion turned to the courts after it lost out to Oneok, a Tulsa,OK-based LDC, in a fierce bidding war for Southwest Gas even thoughSouthern Union bid higher for the company. Southwest Gas’ boardexpressed doubts about whether Southern Union could finance thedeal and obtain the needed regulatory approvals.

The merger has already received unanimous regulatory approval inNevada and had been recommended by the staff of the CaliforniaPublic Utility Commission.

Brummett said ONEOK had been focused heavily on the merger forthe past 12 months, but Southwest’s potential multi-million dollarliability was too much risk to assume.

“ONEOK’s strategy of growth through acquisitions has notchanged,” Brummett said. “We just won’t be making this particularacquisition. There are other opportunities in the natural gasmarket that better meet our business objectives, and we will beactively pursuing such opportunities.”

The merger would have created the largest stand-alone gasdistribution network in the U.S. ONEOK currently serves customersin Oklahoma and Kansas, and Southwest serves Arizona and parts ofCalifornia and Nevada.

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