LAS VEGAS, Oct. 13, 2021 /PRNewswire/ -- Southwest Gas
Holdings, Inc. (NYSE: SWX) announced today that it has issued a
response letter to Carl C. Icahn
addressing points Mr. Icahn raised in his October 4th letter.
Southwest Gas Holdings Board of Directors and Management remain
committed to engaging with shareholders and welcome their
constructive input on ideas to maximize shareholder value.
The full text of the letter is below.
October 13, 2021
Mr. Carl C.
Icahn
16690 Collins Avenue, Suite
PH-1
Sunny Isles Beach,
FL 33160
Dear Mr. Icahn:
Thank you for taking the time to speak with us last week.
We are always open to listening to ideas for enhancing shareholder
value and appreciated the open and candid nature of our
discussion. Our Board and management are committed to our
shareholders and the Company's best interests, including
continuously reviewing strategic priorities to drive long term
value. That said, I do want to take this opportunity to
formally respond to the points that you raised in your October 4th letter – 24 hours before
our announcement of the pending acquisition of Questar
Pipelines.
Questar Pipelines Is an Especially Compelling Asset That
Aligns with Southwest Gas Holdings
Questar Pipelines is a
compelling, high-return suite of assets with unique strength and
stability. As such, the Questar Pipelines acquisition
signifies an increased and significantly diversified regulated
business mix, as it provides robust, steady, and contracted cash
flows. In fact, contrary to one of your specific points, it
meaningfully reduces earnings volatility, and increases strategic
optionality and flexibility. Forecasted to be accretive to
earnings in 2022—the first full year after the expected close—the
transaction will enhance our dividend growth prospects and will
help us fund critical, forward-looking investments for continued
effective growth. Also, the permanent financing plan
strengthens our balance sheet and will ultimately provide us
extremely attractive energy transition opportunities in Renewable
Natural Gas (RNG) and Responsibly Sourced Gas (RSG), hydrogen and
CO2 transportation.
The Acquisition of Questar Pipelines is Appropriately and
Fairly Priced
The acquisition is appropriately priced and
provides significant value to our shareholders. While the
headline price we are paying is 10.9x estimated 2021 EBITDA, after
accounting for approximately $200
million in value associated with the tax basis step-up, the
adjusted multiple is 9.8x estimated 2021 EBITDA. This
valuation is consistent with trading metrics for similar assets,
especially recognizing market valuations since the Berkshire
acquisition was announced.
Our Financing Plan Rebalances Our Capital Structure and
Supports Our Balance Sheet
With committed term loan
financing of $1.6 billion, we
anticipate that permanent financing will be in place by May
2022. We expect that the takeout financing will include
equity and equity-linked instruments and investment-grade bonds (in
addition to assumed debt) that will strengthen our balance sheet
and further enhance our earnings
metrics.
Assertions in Your October
4th Letter Negatively Comparing Our Earned ROE to
Other Utilities Are Inaccurate
Your October 4th letter does not take into
account the material, strategic and fundamental differences between
natural gas and electric utilities, as well as FERC-regulated
assets. These differences are critical qualitative data points in
the analysis of the strength of this acquisition. This is
especially true of their respective capital plans and associated
rate base growth profiles, each utility's unique operating
conditions associated with the geographic footprint of their
service territory, and each utility's ability to potentially
increase sales to offset upward pressure on expenses.
Due in large part to the growth occurring in the Southwest, and
supportive regulatory relationships, we have a robust capital plan
and have been investing in our business, which we believe will
continue to translate to greater long-term earnings due to greater
rate base growth. Because we must file rate cases to increase
our revenue to reflect those investments, there is a regulatory lag
that reduces short-term earned ROE. For example, in 2020 we
had rate cases in all three jurisdictions that resulted in an
increase in rate base of over one billion
dollars and rate increases in 2021 that were not reflected
in the 2020 ROE.
We Have a Long and Demonstrated History of Constructive
Relationships with Our Regulators
Contrary to assertions in
the October 4th letter, we have
supportive and constructive regulatory relationships with each of
our three state commissions – Arizona, California, and Nevada. This belief is
supported by our track record on reaching constructive stipulations
with stakeholders, receiving approvals on major initiatives,
including recent decisions that saw very successful and
constructive approvals for our proposals – each of which are a more
accurate reflection of the status of our working relationship with
regulators and our commitment to working productively with
them.
Our Shareholder Returns Continue to Climb
Since the
pre-Covid market peak, we have delivered shareholder returns
in-line with or better than our peers.
[please refer to the Comparative Stock Price graph]
This and our other investments will drive further improved
performance going forward. We also note, as we did on our
investor call when we announced the deal, that the Questar
Pipelines transaction enhances our ability to continue paying a
dividend at a target level of 55% to 65% of consolidated
earnings.
We Remain Disciplined On G&A Costs as Part of Our Overall
O&M Costs
Any traditional and fair analysis of
our business shows that we have been disciplined on G&A costs
and, like all strong companies, we continue to make improvements
that increase our efficiency. An appropriate comparison
against our Gas LDC peers makes this clear.
[please refer to Annual O&M Expenses Per Customer
graph]
Operational efficiency is a priority at Southwest Gas. As
we have previously publicly acknowledged, a few de minimis personal
expenses (less than 0.01%) were inadvertently included in the
rate cases cited in your letter. When we became aware of the
issues through the rate case process, we immediately contacted our
regulators and withdrew these expenses. We subsequently
strengthened controls and instituted additional processes to
address and prevent this issue from recurring.
This Transaction Increases Strategic Optionality and
Flexibility
Again, like all companies focused on strong and
steady shareholder returns, we continuously evaluate our business
mix. The Questar Pipelines acquisition significantly increases such
optionality for the future of Southwest Gas by broadening our
flexibility to source and allocate growth capital. While we
do not need to divest or spinoff Centuri to finance the Questar
Pipelines acquisition, we will continue to evaluate scenarios that
offer the most long-term value for the Company and
shareholders.
Board Oversight Is Strong and Average Tenure Has
Decreased
We have strong governance and Board
oversight. Our ISS Governance Quality Score is 3 on a scale
of 1-10, where 1 represents low risk and 10 represents high
risk.
We are committed to refreshing our Board over time. With
the addition of two independent directors in 2019, both who are
utility industry experts, the average tenure of our independent
directors is now 10.8 years. Our Board is comprised of diverse and
experienced professionals, all of whom bring a variety of relevant
skills and experiences to the Boardroom, and our evaluation of
additional directors to further enhance our Board is ongoing.
At each of the last several Annual Meetings of Stockholders, all
Company directors were elected by overwhelming majorities,
including the 2021 Annual Meeting, at which all directors were
supported by at least 94% of the shares voted.
Our Executive Compensation Is Well-Aligned to Support
Long-Term Shareholder Value
On compensation, the independent
members of our Board oversee our executive compensation programs
and ensure that they are structured appropriately to reward and
incentivize performance and shareholder value creation. Our program
provides a solid linkage between executive compensation and
long-term shareholder value, aligns with best practices recommended
by the Compensation Committee's independent consultant, is
competitive compared to our peer companies for executive talent and
responds to shareholder expectations for pay-for-performance
alignment. The Company holds an annual say-on-pay advisory
vote regarding executive compensation which is reviewed by the
Board and Committee to determine if changes to the executive
compensation philosophy, policies and decisions are
necessary. At the 2021 Annual Meeting of Stockholders,
approximately 98% of the votes cast were in favor of the
compensation of the Named Executive Officers. All annual and
long-term cash and equity incentives are "at risk"
performance-based compensation.
***
We hope this information provides clarity and assurance to you
that the Questar Pipelines transaction was considered carefully and
thoughtfully. We do believe it will deliver meaningful value
for shareholders and help keep us on an important path related to
future energy needs. Abandoning it now, as you suggested,
would be highly value-destructive and cause the Company to miss a
significant opportunity to maintain our commitment to ensuring
Southwest Gas continues to grow in strength and stature.
We look forward to engaging with you on these points and any
other items you may wish to discuss. Thank you.
Michael J. Melarkey
|
John P.
Hester
|
Chairman of the Board
|
President and Chief
Executive Officer
|
Additional Information and Where to Find It;
Forward Looking Statements;
Participants in the Solicitation
How to Find Further Information
This communication does not constitute a solicitation of any
vote or approval in connection with the 2022 annual meeting of
stockholders of Southwest Gas Holdings, Inc. (the "Company") (the
"Annual Meeting"). In connection with the Annual Meeting, the
Company will file a proxy statement with the U.S. Securities and
Exchange Commission ("SEC"), which the Company will furnish, with
any other relevant information or documents, to its stockholders in
connection with the Annual Meeting. BEFORE MAKING ANY VOTING
DECISION, WE URGE STOCKHOLDERS TO READ THE PROXY STATEMENT
(INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER
DOCUMENTS WHEN SUCH INFORMATION IS FILED WITH THE SEC CAREFULLY AND
IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY AND THE ANNUAL
MEETING. The proposals for the Annual Meeting will be made
solely through the proxy statement. In addition, a copy of
the proxy statement (when it becomes available) may be obtained
free of charge from www.swgasholdings.com/proxymaterials.
Security holders also will be able to obtain, free of charge,
copies of the proxy statement and any other documents filed by
Company with the SEC in connection with the Annual Meeting at the
SEC's website at http://www.sec.gov, and at the Company's website
at www.swgasholdings.com.
Forward-Looking Statements
This document contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements are based on current
expectations, estimates and projections about, among others, the
industry, markets in which Southwest Gas Holdings, Inc. (the
"Company," "Southwest Gas Holdings," "SWX," or "we") operates, and
the transaction described in this press release. While the
Company's management believes the assumptions underlying its
forward-looking statements and information are reasonable, such
information is necessarily subject to uncertainties and may involve
certain risks, many of which are difficult to predict and are
beyond the control of the Company's management. A
number of important factors affecting the business and financial
results of the Company could cause actual results to differ
materially from those stated in the forward-looking statements.
These factors include, but are not limited to, the timing and
amount of rate relief, changes in rate design, customer growth
rates, the effects of regulation/deregulation, tax reform and
related regulatory decisions, the impacts of construction activity
at Centuri, future earnings trends, seasonal patterns, and the
impacts of stock market volatility. In addition, the Company can
provide no assurance that its discussions about future operating
margin, operating income, pension costs, COLI results, and capital
expenditures of the natural gas segment will occur. Likewise, the
Company can provide no assurance that discussions regarding utility
infrastructure services segment revenues, operating income as a
percentage of revenues, interest expense, and noncontrolling
interest amounts will transpire, nor assurance regarding
acquisitions or their impacts, including management's plans related
thereto, such as that currently planned in regard to Riggs Distler & Company, Inc. and the
pending acquisition of Dominion Energy Questar Pipeline, LLC and
related entities (the "Questar Pipeline Group"). Additional risks
include the occurrence of any event, change or other circumstances
that could give rise to the termination of the Sale and Purchase
Agreement by and between Dominion Energy Questar Corporation and
the Company (the "Questar Purchase Agreement"), the outcome of any
legal proceedings that may be instituted against the Company and
others following announcement of the Questar Purchase Agreement,
risks that the proposed transaction disrupts current plans and
operations, the risks related to the ability of the Company to
integrate the Questar Pipeline Group, the amount of the costs,
fees, expenses and charges related to the transaction and the
actual terms of certain financings that will be obtained for the
transaction, potential negative impacts to the Company's credit
ratings as a result of the transaction, the disruption to the
Company's stock price and the costs, fees, expenses and charges
related to, and the distraction of management's attention in
connection with, any proxy contest or other stockholder related or
similar matters, as well as other risks that are set forth under
"Risk Factors" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2020, the
Company's Quarterly Reports on Form 10-Q for the quarter
ended June 30, 2021 and in future filings with the SEC. All
forward-looking statements speak only as of the date of this press
release. All subsequent written and oral forward-looking statements
attributable to the Company or any person acting on its behalf are
qualified by the cautionary statements in this section. The Company
undertakes no obligation to update or publicly release any
revisions to forward-looking statements to reflect events,
circumstances, or changes in expectations after the date of this
press release.
Participants in the Solicitation
The directors and officers of the Company may be deemed to be
participants in the solicitation of proxies in connection with the
Annual Meeting. Information regarding the Company's directors
and officers and their respective interests in the Company by
security holdings or otherwise is available in its most recent
Annual Report on Form 10-K filed with the SEC and its most recent
definitive Proxy Statement on Schedule 14A filed with the
SEC. Additional information regarding the interests of such
potential participants is or will be included in the proxy
statement and other relevant materials to be filed with the SEC,
when they become available.
About Southwest Gas Holdings, Inc.
Southwest Gas Holdings, Inc., through its subsidiaries, engages
in the business of purchasing, distributing and transporting
natural gas, and providing comprehensive utility infrastructure
services across North America.
Southwest Gas Corporation, a wholly owned subsidiary, safely and
reliably delivers natural gas to over two million customers in
Arizona, California and Nevada. Centuri Group, Inc., a wholly owned
subsidiary, is a comprehensive utility infrastructure services
enterprise dedicated to delivering a diverse array of solutions to
North America's gas and electric
providers.
Contacts
For stockholders information, contact:
Ken Kenny (702) 876-7237
ken.kenny@swgas.com
For media information, contact: Sean
Corbett (702) 876-7219 sean.corbett@swgas.com
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SOURCE Southwest Gas Holdings, Inc.