Putting to rest a long-running bitter feud, Southwest Gas has agreed to pay Southern Union $17.5 million to settle claims of fraud and bad faith breach of contract related to Southern Union’s attempts to purchase Southwest.

The argument began over the rights to merge with Southwest more than three years ago. In December 1998, Oneok entered into a merger agreement to acquire Las Vegas-based Southwest for $28.50 per share. However, in February 1999, Wilkes-Barre, PA-based Southern Union offered to acquire Southwest for $32 per share but was rejected (see Daily GPI, Feb. 23, 1999). Southern Union said its deal totaled $108 million more for Southwest shareholders than the Oneok deal. When Southwest accepted Oneok’s offer, Southern Union again increased its bid to $33.50/share, but was still rejected in favor of Oneok’s offer (see Daily GPI, April 28, 1999).

After Oneok pulled out of its merger with Southwest, citing too much liability related to lawsuits, Southwest sued Southern Union for, among other things, breach of contract and interference with a contract (see Daily GPI, Jan. 24, 2000; Jan. 26, 2000). On Jan. 4, 2002 the United States District Court of Arizona dismissed all of Southwest’s claims against Southern Union (see Daily GPI, Jan. 8).

After Southwest rejected Southern Union’s higher offer, Southern Union commenced its case against Southwest, Oneok and others in the district court for fraud and bad faith breach of contract. Southern Union said all of those claims, which were set for trial in October 2002, are resolved by the $17.5 million payment.

“On several occasions, Southwest publicly stated that Southern Union’s claims against it were ‘baseless’ and ‘without merit.’ This settlement clearly vindicates Southern Union’s claims and reputation,” said George L. Lindemann, Southern Union’s CEO.

As part of the settlement, Southern Union’s claims against Southwest CEO Michael O. Maffie were also resolved. Southwest said it will take a one-time, non-recurring charge of $17.5 million, or $0.33 per share, in the second quarter of 2002 to cover the settlement costs.

“Southwest is pleased to finally resolve our legal disputes with Southern Union,” said Southwest Chairman Thomas Hartley. “Three years of intense litigation have gone by since Southern Union Co. filed its lawsuit against Southwest and several of its officers and directors. Southern Union claimed damages of $750 million at that time. In settling this matter now, Southwest determined that reasonable business judgment called for resolution of the remaining Southern Union claims. Our management team will now have more time to focus our efforts on the fastest growing natural gas distribution company in the United States, Southwest Gas. We strongly believe that this settlement is in the best interests of the company, our shareholders, our employees and our customers.”

Despite the joint settlement, neither company said it is done with legal wrangling. Southwest said it will continue to seek appropriate damages in its remaining breach of contract, breach of implied covenant of good faith, fraud and fraud in the inducement claims against Oneok. Trial of Southwest’s claims against Oneok is scheduled to commence in Phoenix on Oct. 15.

On the other hand, Southern Union said it will also continue to pursue its claims against Oneok, in addition to claims against Arizona Corporation Commissioner James Irvin and others related to their interference with Southern Union’s attempts to purchase Southwest. Those claims are also still set for trial in October 2002.

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