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Southwest Gas Holdings, Inc. (NYSE: SWX) (“Southwest Gas” or the “Company”) today announced that its Board of Directors unanimously determined to take strategic actions to simplify the Company’s portfolio of businesses. These actions include entering into a definitive agreement to sell 100% of MountainWest Pipelines Holding Company (“MountainWest”) in an all-cash transaction to Williams (NYSE: WMB) for $1.5 billion in total enterprise value, subject to certain adjustments. Additionally, the Company determined it will pursue a spin-off of its wholly owned subsidiary, Centuri Group, Inc. (“Centuri”), to form a new independent publicly traded utility infrastructure services company.
E. Renae Conley, Chair of the Board, said, “After carefully evaluating all available alternatives, we are confident that simplifying our corporate structure and creating two focused industry leaders is the right outcome of our strategic review. Southwest Gas will be a leading fully regulated natural gas utility with an optimized balance sheet that will enable continued investment in safety, customer service and infrastructure and a stable and competitive dividend policy.”
Ms. Conley continued, “Centuri will benefit from a management team focused on its comprehensive service capabilities, blue-chip customer base and increasing national investments in utility infrastructure, 5G and renewables. The strategic actions we are taking create the opportunity for stockholders to own two leading independent companies poised for long-term sustainable value creation.”
Karen S. Haller, President and Chief Executive Officer of Southwest Gas, stated, “At Southwest Gas, we take pride in the critical responsibility we have to provide reliable, sustainable and affordable energy to our Arizona, Nevada and California-based customers. These transactions will allow the Company to exclusively focus on our obligations to the communities we serve while continuing to exceed customer expectations and build on the significant growth potential we have already started to realize. We have an exciting opportunity to optimize Southwest Gas in order to deliver an expected return on equity of more than 8% while continuing to invest in our utility operations and maintaining industry-leading customer satisfaction. We believe that both MountainWest and Centuri will also be best positioned to thrive following the completion of the transactions and have conviction that the strategic decisions we are announcing today will be in the best interest of all stakeholders over the long-term.”
The separation is expected to drive value for all stakeholders and create a number of benefits for Southwest Gas and Centuri, including:
Sale of MountainWest
Under the terms of the transaction, Southwest Gas will sell 100% of MountainWest to Williams for $1.5 billion in total enterprise value, subject to certain adjustments. Net proceeds will be used to repay the Company’s approximately $1.1 billion term loan.
MountainWest operates over 2,000 miles of interstate natural gas pipeline systems primarily located across Utah, Wyoming and Colorado, totaling approximately 8,031 million dekatherms per day of transmission capacity. MountainWest also holds 56 billion cubic feet of total storage capacity, including Clay Basin, the largest underground storage reservoir in the Rocky Mountain Region.
The transaction is expected to close in 2023, following regulatory approvals and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The transaction represents an estimated loss of $350 – $425 million for Southwest Gas, net of tax.
Spin-Off of Centuri
The Board of Directors has unanimously decided to pursue a spin-off of Centuri. Upon completion, the separation will result in two independent publicly traded companies: Southwest Gas and Centuri. The Company is taking actions immediately to execute this transaction and plans to begin making necessary filings in the first quarter of 2023.
As a standalone, independent company, Centuri, a utility services platform diversified across the U.S. and Canada, will continue to be an industry leader at the forefront of infrastructure modernization. Centuri is positioned to support the energy transition given its extensive infrastructure capabilities and attractive blue-chip customer base comprised of a diverse range of utilities. With highly recurring revenue underpinned by long-term master service agreements and stable contracts, Centuri is expected to generate strong cash flows to optimize its capital structure, invest in business prospects and provide attractive returns to stockholders.
Centuri has already been operating using a standalone business model and, as such, Southwest Gas is not anticipating any material changes to Centuri’s operations and cost structure, nor is Southwest Gas expecting significant dis-synergies at Southwest Gas or Centuri as a result of the spin-off. Centuri’s cost structure will continue to be evaluated in the ordinary course of management’s review of operations for savings opportunities.
The separation is expected to be completed in approximately 12 months and to be tax free to Southwest Gas and its stockholders for U.S. federal income tax purposes. The separation will be subject to, among other things, finalizing the transaction structure, approval by the Arizona Corporation Commission, the receipt of a favorable Internal Revenue Service private letter ruling relating to the tax-free nature of the transaction, the effectiveness of a registration statement that will be filed with the U.S. Securities and Exchange Commission and final approval by Southwest Gas’ Board of Directors. Further details related to capital structure, board composition and other elements of the transaction will be announced at a later date.
There can be no assurance regarding the ultimate timing of the proposed transactions or that the transactions will be completed.
Moelis & Company LLC is serving as financial advisor to the Strategic Transactions Committee of the Southwest Gas Board of Directors for the sale of MountainWest and the spin-off of Centuri.
Lazard is serving as financial advisor to Southwest Gas for the sale of MountainWest and the spin-off of Centuri.
UBS Investment Bank is serving as a financial advisor to Southwest Gas for the spin-off of Centuri.
TD Securities and J.P. Morgan are serving as co-financial advisors to Williams.
Morrison & Foerster LLP is serving as legal advisor to Southwest Gas for the sale of MountainWest and the spin-off of Centuri. Davis Polk & Wardwell LLP is serving as legal advisor to Williams.
The Company will host a conference call today, Thursday, December 15, 2022 at 10:00 a.m. ET to discuss the transactions. The associated press release and presentation slides will be available at https://investors.swgasholdings.com/investor-overview. The discussion may include business, financial or other information not contained in this press release.
The call will be webcast live on the Company’s website at https://investors.swgasholdings.com/events-and-presentations/upcoming-events. The telephone dial-in numbers are: 1-844-695-5521 or international 1-412-317-5438. The conference ID is 10173873. The webcast will be archived on the Southwest Gas website.
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