June 21, 2024

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Activist Corvex could turn to a tried-and-true playbook to realize value at Southwest Gas

2 min read

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Company: Southwest Gas Holdings (SWX)

Business: Southwest Gas distributes and transports natural gas in Arizona, Nevada and California. It operates through its natural gas distribution and utility infrastructure services, as well as its pipeline and storage segments. Southwest Gas is currently pursuing a separation of its utility infrastructure services company, Centuri Group, which is expected to be completed by the first quarter of 2024.

Stock Market Value: $4.1B ($57.76 per share)

Activist: Corvex Management

Percentage Ownership:  5.81%

Average Cost: $60.68

Activist Commentary: Corvex was founded in 2011 by Keith Meister, Carl Icahn’s former lieutenant who served as CEO and vice chairman of Icahn Enterprises. Corvex is a highly concentrated, fundamentally driven hedge fund that uses activism as a tool, but not a primary strategy. The firm’s preference is not to be an activist, with a proxy fight being a last resort. Rather, Corvex would prefer to amicably be invited on boards.

What’s happening

Corvex intends to have discussions with Southwest Gas’s board and management to discuss options to unlock the value of the company’s core utility franchises and its investment in Centuri Group. These include improving earned returns on capital, further restructuring, as well as a potential sale of the company.

Behind the scenes

Utilities have not historically been a common target of activists, but in the current environment we are seeing a lot more of it, particularly from Corvex (MDU Resources and Exelon). There are several characteristics that make regulated utility companies attractive investments today. First, these companies have largely been benefiting from the green energy transition, leading to annual growth ranging from 4% to 7%, versus 2% historically. Second, domestic utilities are not negatively impacted by geopolitical risks like wars and uncertainty with China. Third, interest rates provide an intriguing dynamic for…

2023-11-11 06:44:00

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