(Bloomberg) -- Activist investor Carl Icahn is stepping up his fight with Southwest Gas Holdings Inc.
The billionaire, who has disclosed a 4.9% stake in the utility, is offering to buy remaining shares for $75 each and initiating an effort to replace the board after the company ignored his call to walk away from a deal to buy Questar Pipelines from Dominion Energy Inc.
“We tried to prevent the disastrous Questar deal,” Icahn wrote Thursday in an open letter to shareholders. “We believe our tender offer will be in the best interests of all stockholders.”
It’s the latest salvo in Icahn’s dispute with Southwest, which announced last week that it reached an agreement to buy Questar for about $2 billion. Icahn had objected to the deal, saying Southwest was paying too much and that the move came as many regulated utilities are shedding non-core assets to focus on their primary businesses. He also slammed Southwest’s “poor governance.”
Icahn’s tender offer represents a roughly 16% premium over the closing price on Wednesday. He plans to launch a proxy contest at Southwest’s annual general meeting to replace the company’s entire board.
“He can be tenacious -- so get the popcorn ready,” Paul Patterson, a utilities analyst at Glenrock Associates, said in an interview. “He’s not just going to pack up his suitcase and walk away.”
Should Icahn Enterprises commence a tender offer for Southwest Gas Holdings common shares, the board will review the offer in consultation with its financial and legal advisors to determine the course of action that it believes is in the best interests of the company and its stockholders, Southwest Gas said in a statement.
Shares of Southwest, which provides natural gas for more than 2 million customers in Arizona, California, and Nevada, closed up 7% Thursday after the letter was published.
Icahn said that if another buyer were to emerge with a higher takeover price, he would either raise his offer or support that bid. Southwest didn’t respond to a request for comment.
In his letter, Icahn wrote that he tried repeatedly to call Southwest executives before the Questar deal was signed.
“CEO John Hester’s assistant kept telling me that he was ‘“out to lunch,”’ Icahn wrote. “I couldn’t help thinking that she couldn’t be more correct.”
The activist also accused Southwest’s CEO of putting his own interests ahead of the company and its shareholders.
“We believe Hester and his team would go to any length – including value destruction – to keep his $6 million compensation package,” Icahn wrote. “He is not only proving that now, but he has proved it several times over.”
Short of canceling the Questar deal, Icahn he said the company should have at least offered discounted stock to existing shareholders through a rights offering, saying the acquisition could cause up to $1 billion of dilution.
Icahn said the tender offer is conditioned on Southwest rescinding a so-called poison-pill provision that the company put in place earlier this week, potentially discouraging any takeover offers. It also hinges on regulatory approval and Southwest not issuing any additional equity or equity-linked securities, he wrote.
It’s unlikely Southwest will agree to those terms “unless the company’s hand is forced,” analysts for Citi Research wrote in a note Thursday.
(Updates with response from Southwest Gas in 7th paragraph.)
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