Southwest Gas Holdings Inc. (SWX) on Tuesday, Nov. 9, announced changes to its board at the same time that it said it was rejecting Carl Icahn’s hostile $4.4 billion cash tender offer to acquire the business.
In a statement, the Las Vegas-based utility company said its board unanimously determined that Icahn’s bid, for $75 a share, was inadequate and undervalues the company.
The announcement emerged after Icahn launched efforts to nominate a change-of-control slate of dissident directors for Southwest’s board in a campaign focused on his concerns around its nearly $2 billion deal announced Oct. 5 to buy Dominion Energy Inc. (D) subsidiary Questar Pipeline Co.
The billionaire insurgent has said that acquisition would result in “serious diminution of shareholder value.” Icahn expects to disclose the names of his dissident slate shortly, according to a person familiar with the situation.
On Tuesday, Southwest Gas, in an apparent defensive move in advance of the contest, said it would replace two existing directors who are among the most long-serving board members — Michael Melarkey, 72, and Stephen Comer, 72, with two new directors, E. Renae Conley and Carlos Ruisanchez.
Melarkey, currently chairman, and Comer are set to resign at the company’s yet-to-be-announced 2022 annual meeting. Melarkey has held his directorship for nearly 18 years while Comer has been a director for 15, according to relationship mapping service BoardEx, a sister company to The Deal.
Southwest Gas said the new directors will join on Jan. 1 while existing board member Robert Boughner, 69, is scheduled to take the chairmanship role at the 2022 annual meeting.
Conley has served as CEO of privately held ER Solutions LLC, an energy consulting firm, and she previously was executive vice president of human resources and chief diversity officer at electric power producer Entergy Corp. (ETR). Ruisanchez is the co-founder of Sorelle Capital, Sorelle Entertainment and Sorelle Hospitality, firms focused on hospitality and real estate ventures.
Southwest Gas on Tuesday, meanwhile, also reported a loss of 19 cents a share for the third quarter, significantly worse than the 13-cent profit expected by a FactSet Research Systems Inc. compiled consensus of analysts. Even so, Southwest Gas reported sales of $888.7 million, which was better than the analyst consensus estimate of $836.43 million.
Southwest Gas shares traded down slightly by about 0.3%, to $68.64 a share in morning trading Tuesday, on the earnings and board changes news.
On Oct. 25, Icahn sought to preempt a possible so-called white squire defensive private investment in public equity, or PIPE, financing at Southwest Gas with a PIPE offer of his own.
Icahn, a 4.91% SWX holder, in a note cited a Citigroup Inc. report issued on Oct. 21 suggesting that “management seemed open if a large investor wanted to make a block investment in the company” The note added that “a large investor (most likely friendly) may want to buy into the holding company at a reasonable price.”
The analyst said a PIPE infusion was one of a couple of options SWX could employ as a mechanism to help it finance its Questar deal.
Even so, a large PIPE block investment from a friendly buyer could be converted into a large percentage common share stake, perhaps as much as almost 20%, which would be expected to vote for the incumbent board.
So far Southwest Gas hasn’t received a PIPE investment. It noted in October that it would assess financing for its Questar acquisition “in a manner that is in the best interest” of shareholders.