⛽ Is Southwest Gas Leaking Investor Confidence?

Cigna, Twitter sell some businesses; Ford suspends production.

Hey Global Investor! Here’s what you need to know before the US markets open.

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S&P 500 (Thursday’s Close) 4,399.76 +36.21 (0.83%)

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⛽ Southwest Gas: Why Icahn Says “You Can’t?”

Southwest Gas Holdings Inc. (SWX) is acquiring Questar Pipelines from Dominion Energy (D) for $1.975B. This deal pits the company against activist investor Carl Icahn who has opposed it. In some not-so-good news for the company, shareholders seem to agree with Icahn’s assessment. (Tweet This)

Gassy Deals

Established in 1931 in California, Southwest Gas had its operations in what were then rural towns such as Barstow and Victorville. Southern Nevada received the first supply of natural gas in 1953 when Southwest started serving customers in Las Vegas and Henderson. It forayed into Arizona in 1957 after acquiring the Natural Gas Service of Arizona.

The company provides natural gas service to over 2M residential, commercial, and industrial customers across Arizona, Nevada, and California. It is the largest distributor of natural gas in Arizona and Nevada.

Dominion Energy was founded on the other side of the country in Virginia in 1983. It supplies electricity to parts of Virginia along with North and South Carolina. It also provides Natural gas to parts of Utah, West Virginia, Ohio, Pennsylvania, North and South Carolina, and Georgia.

In February 2016, Dominion merged with Questar Gas Company and reorganized it as a subsidiary for $4.4B. The combined company included 2.5M electric utility customers in Virginia and North Carolina and 2.3M natural gas customers in Idaho, Ohio, Utah, West Virginia, and Wyoming.

Late last year, Berkshire Hathaway acquired Dominion’s natural gas transmission and storage assets. Berkshire was also considering acquiring Questar Pipelines but abandoned the talks in July this year over worries of antitrust regulatory hurdles.

As Southwest began advanced talks with Dominion to acquire Questar earlier this week, it faced serious opposition from activist investor Carl Icahn. Icahn owns a 4.9% stake in the company. Notwithstanding his opposition, Southwest announced the Questar acquisition for $1.975B, including $1.545B in cash and $430M of debt.

Icahn: You Ca(h) n’t!

Carl Icahn is the founder of Icahn Enterprises, formerly known as American Real Estate Partners. He is also Chairman of Federal-Mogul, a powertrain component, and vehicle safety products maker and supplier. He is 26th on the Forbes 400 list of wealthiest people.

On Monday, Icahn wrote a scathing letter to Southwest’s board stating the acquisition of Questar will dramatically impact shareholder value and found an issue with Southwest’s “egregious errors.” He claimed the acquisition was so bad that it would overshadow all the past management errors.

Icahn also lamented the company’s weak leadership when dealing with the regulators, runaway expenses, and weakened credit profile. Instead, Icahn argued the management must shore up the sagging share price. Investors lapped up Icahn’s comments, and Southwest’s shares rose over 6% in response.

Turning a blind eye to Icahn, the company went ahead with the deal, which is expected to close by the year-end. Shareholders, including Icahn, cannot shoot down the deal as Southwest will be paying cash and not shares for the transaction.

For Dominion, the deal comes as a sigh of relief after the Berkshire fiasco. The company will use proceeds to pay down debt and support its spending plans.

So why is Icahn objecting? In the past 12 months, Southwest stock has declined 2.3%. The five-year number isn’t very impressive either – a rise of 4.4%. If the stock continues its lackluster performance, Southwest might very well go south!

Market Reaction
SWX ended at $66.10, down 2.79%.

Company Snapshot 📈

SWX $66.10 -1.56 (2.31%)

Analyst Ratings (06 Analysts) BUY 33%  HOLD 67%  SELL 0%

Newsworthy 📰

Offloading: Insurer Cigna to sell some businesses to Chubb for nearly $5.8B (CI +0.72%)

Halt: Ford to suspend production for two days at Mexico plant on material shortage (F +5.45%)

Profitable: Twitter sells MoPub mobile ad network to AppLovin for $1.05B (TWTR +4.37%)

Later Today 🕒

  • Coastal Financial Corporation Earnings (CCB)
  • 6:00 PM IST: Nonfarm Payrolls
  • 7:30 PM IST: Wholesale Inventories

Today’s Market Terminology: Market Capitalization

Market capitalization is the market value of a publicly-traded company’s outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding

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