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. Following on the mid-week announcement by the two companies, Oneok Inc. said Friday it had agreed to pay $3 million to Southwest Gas in settlement of other litigation related to the three-way wrangle.

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, Southern Union, which serves parts of Texas, offered to acquire Southwest for $32 per share but was rejected (see NGI, March 1, 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 NGI, May 3, 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 NGI, Jan. 24, 2000; Jan. 31, 2000). On Jan. 4, 2002 the United States District Court of Arizona dismissed all of Southwest’s claims against Southern Union.

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.

“Three years of intense litigation have gone by since Southern Union Co. filed its lawsuit against Southwest and several of its officers and directors,” noted Southwest Chairman Thomas Hartley. “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… We strongly believe that this settlement is in the best interests of the company, our shareholders, our employees and our customers.”

Oneok Inc. announced Friday it has reached a definitive agreement to pay Southwest Gas $3 million in settlement of a lawsuit between the two parties.

“We are glad to finally resolve three years of litigation with Southwest,” said David Kyle, Oneok’s chairman. “Only one claim by Southern Union arising out of the failed merger transaction remains. Based on rulings to date from the court it is limited to actual damages of less than $1 million and the possibility of punitive damages. A motion for summary judgement is currently pending on that claim.”

Southern Union said it was continuing 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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