Shares of Southwest Gas jumped as much as 2.8% before giving up gains to trade at $64.92 at 3:31 p.m. trading in New York.
Icahn offered in October to acquire the shares in Southwest Gas that he doesn’t already own for $75 apiece and nominated 10 directors to replace the board, arguing that dramatic change was needed at the company to improve its performance. He has been critical of Southwest Gas’s decision to buy Questar Pipelines, and in particular the equity and equity-linked securities it plans to issue to help finance the deal.
The board of Southwest Gas has unanimously rejected Icahn’s offer, arguing that it undervalues the company, is not in the best interest of its shareholders, and raises regulatory issues.
“The incumbent SWX board has claimed – falsely – that, because our acquisition of control of SWX will require regulatory approval, our offer is ‘highly illusory and it is very unlikely that stockholders will ever receive any offer consideration,’” Icahn said in the letter, a copy of which was reviewed by Bloomberg. “Today’s change takes that false claim completely off the table.”
If Icahn ultimately sought to own the remaining shares directly, he would seek approval only after closing his offer and after paying out shareholders, according to the letter.
A representative for Southwest Gas wasn’t immediately available for comment.
Icahn acknowledged Wednesday his offer is currently being blocked by Southwest Gas’s poison pill. He said he would also retool his tender offer so that it would only proceed if the majority of the board was replaced with his candidates, who would then vote on whether to remove the poison pill and allow his proposed offer to proceed.
“We have thus added a degree of certainty to our offer that even this board’s doublespeak cannot obfuscate. Indeed, following these changes, our offer contains far fewer conditions than most other tender offers,” he said, noting that many are subject to due diligence or financing conditions.
Icahn pointed to a similar approach he took during a tender offer that was launched at CVR Energy Inc. in 2012 alongside a proxy contest at the company. He noted that CVR’s board also fought his offer with a poison pill, but Icahn ultimately prevailed.
“When stockholders overwhelmingly tendered, indicating their intention to vote in a new board that would remove the pill, thereby allowing the Icahn group to purchase their stock at a high premium, the incumbents resigned rather than almost certainly losing in the proxy contest,” he said. “We believe the SWX board and management would similarly resign if a large percentage of shares were tendered.”