Southwest Defies Icahn, Will Buy Questar for $2 Billion

(Bloomberg) -- Southwest Gas Holdings Inc. reached an agreement to buy Questar Pipelines from Dominion Energy Inc. for about $2 billion, defying objections from activist investor Carl Icahn. 

Dominion announced the deal hours after the billionaire disclosed a 4.9% stake in Southwest and warned that the move would be a mistake. The agreement, expected to close during the current quarter, calls for Southwest to assume about $430 million in debt, according to a statement Tuesday.

In a letter to Southwest’s board, Icahn argued that the price for the deal was too high and that the company was pursuing it at a time when many regulated utilities are shedding non-core assets to focus on their primary businesses.    

“During the past few years, management of SWX has made a number of egregious errors at the expense of shareholders,” Icahn wrote. “The purchase of Questar you are currently being rumored to make at the price you are willing to pay will make all past errors pale in comparison.” 

Icahn also slammed Southwest’s “poor governance” and high costs. The activist filed paperwork with regulators Tuesday that would allow him to run his own slate of candidates for Southwest’s board, laying the groundwork for a potential proxy fight at the company.

Southwest Chief Executive Officer John Hester referred to Icahn’s letter without mentioning the investor by name, and said the company only received the missive about 24 hours earlier. 

Southwest will formulate a “thoughtful response,” perhaps as early as this week, Hester said during a Tuesday evening conference call with analysts.  “That said, the shareholder’s interests and concerns will have no impact on our company proceeding with the Questar Pipelines acquisition.” 

Questar, he said, is a natural fit with Southwest, and a “very attractive value.” 

Shares of Southwest, which provides natural gas for more than 2 million customers in Arizona, California, and Nevada, fell as much as 4.1% after the close of regular trading in New York. 

Questar Pipelines consists of FERC-regulated, long-term contracted, transportation and underground storage assets in Utah, Wyoming and Colorado, along with related services and processing entities.

The pending sale follows an aborted attempt by Dominion to offload the pipeline to Warren Buffett’s Berkshire Hathaway Inc. for about $1.7 billion. That deal, originally agreed upon last year, was scrapped in July amid opposition from antitrust regulators. 

Dominion will use proceeds from the sale to pay down debt, including a loan the company took out in July to repay the roughly $1.3 billion deposit from the failed deal with Berkshire Hathaway.

©2021 Bloomberg L.P.