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Utility Co. buys Southwest Gas

Staff Reports

Oneok, Inc. and Southwest Gas today announced that their boards of directors have unanimously approved a definitive merger agreement.

Oneok will pay $28.50 per share of Southwest Gas common stock outstanding, valuing Southwest Gas at approximately $1.8 billion, including assumed debt.

The transaction is expected to be accretive in the first full year of operations.

The merger will create the largest stand-alone gas distribution company in the United States serving 2.6 million customers in five states with over 160 years of combined experience in the natural gas distribution business. Oneok’s acquisition of Southwest Gas combines the financial strength of Oneok with the country’s fastest growing gas distribution utility.

Oneok’s role

Oneok will be the primary gas distribution company m Arizona, Kansas, Nevada and Oklahoma and will also have a strong presence in the state of California.

Larry Brummett, chairman and chief executive officer of Oneok, said, “We are excited about the opportunities this merger provides for the employees and customers of Oneok and Southwest Gas.

“Oneok has demonstrated its ability to profitably merge gas distribution operations, while enhancing service to customers and opportunities for employees. We are confident this merger will create value for our shareholders through increased earnings growth in a deregulating energy marketplace.”

Brummett added, “Southwest Gas has a talented employee base with skills that are very complementary to Oneok’s.

“We believe the expertise of Oneok as a fully integrated gas distribution company with gas production, marketing and processing will create new opportunities at Southwest Gas. Southwest Gas serves two of the fastest-growing states in the country – Arizona and Nevada – and we look forward to profitably developing this growth with our new partner.”

Financial solidity

Michael Maffie, president and chief executive officer of Southwest Gas said, “The new company will be solid financially with strong cash flow to enhance growth opportunities in the rapidly expanding Southwest Gas service territories and will minimize regulated business risks with the diversified geographic exposure of five states.”

The terms of the transaction call for three Southwest Gas board members to join Oneok’s board filling a current vacancy and two positions that will be vacated due to retirements in 1999.

Southwest’s role

Southwest Gas will operate as a division of Oneok, Inc. and will retain its name in the local markets it serves.

Larry Bruinmett said, “The merger is not expected to result in employee lay-offs and we would expect future employee adjustments to be the result of attrition and/or voluntary separation.”

Bruinmett added, this transaction enhances Oneok’s position as a strong regional energy company and affirms our belief in the dynamic growth potential of the natural gas industry.

Subject to approval

The transaction is subject to customary conditions, including approvals from Southwest Gas shareholders, state regulators in Arizona, California and Nevada, and the Federal Energy Regulatory Commission.

The merger is expected to be accounted for using the purchase method, and the transaction is expected to close during the fall of 1999.

1.2 million customers

Southwest Gas Corporation provides natural gas to approximately 1.2 million customers in Arizona, Nevada and California. Its service territories are centered in the fastest-growing region of the country.

Oneok, Inc., is engaged in natural gas intrastate distribution and transmission, gas processing, gas marketing and gas production.

Oneok has approximately 31.6 million shares of common stock.

Major deal points

The merger will create the largest stand-alone gas distribution company in the United States serving 2.6 million customers in five states.

It will also be the fourth largest natural gas company overall, when considering combination gas and electric companies.

Oneok will be the primary gas distribution company in Arizona, Kansas, Nevada and Oklahoma and will also have a strong presence in the State of California.

Combined entity will have total assets of $4.2 billion and total revenues of $2.7 billion.

According to a press release, “The new company will be solid financially with strong cash flows to enhance growth opportunities.

“The new company achieves an increased level of diversification as to geography, weather, economics, politics and regulation…a strategy the Southwest Gas has embraced for 20 years.

“The fundamentals of the two businesses also provide an excellent “fit”, i.e., Southwest’s very significant growth but weak cash flow and Oneok’s lack of growth and strong cash flow.”

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