After a week of offers, acceptances and counter-offers, Southern Union and Oneok are now waiting to see who is awarded the prize of merging with Southwest Gas. Both companies said they have reached the maximum they can offer. The only winners so far, according to a source close to the situation, have been Southwest Gas’ shareholders, who have seen the price for their shares vault from an original $28.50/share to $33.50/share.
As the situation stood last Friday, Southwest Gas still was in the middle of a definitive agreement to merge with Oneok. The agreement was first announced in December (See NGI, Dec. 21, 1998), with Oneok expected to pay $28.50/share for the Las Vegas, NV-based gas distribution company. However in February, Southern Union jumped in with an unsolicited merger bid of $32 or $988 million.
Last week, Oneok sweetened its offer to $30/share, amounting to a total of $912 million, and the board of directors for each company signed on the dotted line. But then Southern Union decided it could give up a little more, and raised its offer to $1.02 billion, or $33.50/share.
“The merger with Oneok is signed, sealed and approved by the boards of both companies,” said Southwest spokesman Lew Phelps. “If Southwest decides to break it off, they would be charged a $30 million break-up fee. That being said, they are reviewing the Southern Union offer.”
Southwest said it chose Oneok because it believed the deal offered less regulatory hang-ups than a Southern Union-Southwest combination. Analysts agreed. “Oneok has deeper pockets and has the ability to grow the company better than Southern Union,” said Zach Wagner, an Edward Jones analyst. “That gives Oneok a bit of an advantage in the eyes of regulators who are looking out for customers’ best interests.”
Southwest CEO Michael Maffie said the Oneok offer could be completed more efficiently. “The fact is, the longer the elapsed time for consummation, the greater the uncertainties associated with Southern Union raising the capital to fund the purchase.”
Disappointed by Southwest Gas’ board of directors’ decision to accept Oneok’s $30/share offer over its own, Southern Union decided to up the ante late Tuesday. “We were so disappointed that the board chose Oneok over us, even though our $32/share offer was $60 million more. We value Southwest. We think it is a good fit with us and we won’t let it go without trying everything possible,” said George Yankowski, a Southern Union spokesman.
Southern Union’s new offer included a payment to shareholders at a rate of 6% annual interest on the $33.50 share price for every day the deal is not closed past Feb. 15, 2000, in an attempt to ease worries about regulatory hold-ups. “Basically, we will pay Southwest shareholders from the middle of February 2000 until closing, if the deal has not been closed by that point,” Yankowski said. “All we want is an immediate merger agreement.”
Wager said the interest payment was an interesting move, but it may not be effective. “The 6% is a little low. I could think of better things to do with my money. It was a move to settle some fears, but I don’t know how many fears it will settle.”
Phelps said there is no timeline for a Southwest decision. “There is no pressure from anywhere to get this done as long as the price keeps going up.” He would not say when a decision will be reached.
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