Southwest Gas sells gas pipeline, storage subsidiary to Williams in $1.5B deal

Southwest Gas Holdings Inc. will sell recently acquired natural gas pipeline and storage assets to Williams Cos. Inc. and spin off the utility company's Centuri Group Inc. subsidiary, putting Southwest Gas on track to become a pure-play gas utility.

The company said Dec. 15 that it will sell MountainWest Pipelines Holding Co. to Williams for $1.5 billion in total enterprise value. The sale comes less than one year after Southwest Gas closed its acquisition of the Western U.S. midstream assets from Dominion Energy Inc.

That acquisition drew the ire of activist investor Carl Icahn, sparking a proxy battle that ultimately ended in Icahn winning four seats on the company's board of directors and the ouster of former Southwest Gas President and CEO John Hester. Icahn pushed for a sale of MountainWest and supported a spinoff of Centuri.

"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," Southwest Gas President and CEO Karen Haller said in a press release. "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."

Shares of Southwest Gas were down about 4.5% following the announcement.

MountainWest sale

The sale of MountainWest, which Southwest Gas acquired for nearly $2 billion, represents a loss of $350 million to $425 million for the Las Vegas-based gas distributor. Southwest Gas will use the net proceeds to pay down its roughly $1.1 billion term loan.

The deal includes nearly $1.1 billion of cash and roughly $430 million of assumed debt, Williams said in a Dec. 15 press release. The price represents about eight times MountainWest's estimated 2023 EBITDA multiple, Williams said.

Southwest Gas pitched the acquisition of Dominion's assets as a way of diversifying its regulated gas transportation business. Icahn called it an overly expensive deal that distracted management from correcting their alleged missteps at the company's core Southwest Gas Corp. gas utility.

Williams said the acquisition of MountainWest would expand its service into Rocky Mountain demand markets.

MountainWest operates 2,000 miles of interstate gas pipelines, chiefly in Colorado, Utah and Wyoming. It also holds 56 Bcf of gas storage capacity and operates Clay Basin, the region's largest gas storage facility. Williams operates the Northwest Pipeline LLC, a bidirectional gas artery stretching 1,500 miles from Washington state to Colorado.

"Our natural gas-focused strategy is anchored in having the right assets in the right places to serve our nation's growing demand for clean, affordable and abundant natural gas," Williams President and CEO Alan Armstrong said in a statement. "MountainWest is complementary to our current footprint, providing us with infrastructure for natural gas deliveries across key demand markets, including into Salt Lake City."

The parties expect the transaction to close in 2023, subject to regulatory approval and provisions under the Hart-Scott-Rodino antitrust act.

Centuri spinoff

Southwest Gas also said it will immediately take action to spin off Centuri, an unregulated energy infrastructure services business.

The company announced it would separate its regulated gas business from Centuri in March, later specifying the transaction would be a tax-free spinoff. Southwest Gas then put those plans on hold in April as it launched a broader strategic review that included a potential sale of the entire holding company. In August, the board decided against an outright sale and refocused the review on strategic alternatives for Centuri and MountainWest.

Southwest Gas said it plans to begin filing for the spinoff in the first quarter of 2023 and expects to complete the transaction within about 12 months, subject to state and federal approvals.

"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 Board Chair E. Renae Conley said in a statement.