Carl Icahn holds Southwest Gas stake, objects to Questar deal

Oct 5 (Reuters) - Carl Icahn holds a significant stake in Southwest Gas Holdings Inc (SWX.N) and is pushing the gas distribution company to abandon a potential acquisition and instead focus on improving its share price, a letter from the activist investor detailed on Tuesday.

Southwest Gas has agreed to acquire Questar Pipeline Co, a gas transportation and storage business owned by Dominion Energy Inc (D.N), in an all-cash transaction. The total value of the deal, including assumption of debt, is $1.98 billion, according to a statement from Dominion. read more

The announcement confirmed a Reuters report from Sunday that Southwest Gas was in advanced talks to buy Questar. read more

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In July, the energy arm of Warren Buffett's Berkshire Hathaway Inc (BRKa.N) abandoned an acquisition of Questar for $1.7 billion, including debt, because of fears antitrust regulators would not sanction it. This was part of a wider deal to purchase Dominion's gas infrastructure business.

Icahn, who has a history of agitating for change at U.S. utilities, said in letter dated Oct. 4 to Southwest Gas' board that the prospective purchase would "result in serious diminution of shareholder value" and would compound other management errors in recent years.

The letter - published prior to the deal announcement - said Southwest Gas was trading below its peers, with financial performance held back by high expenses and a poor relationship with regulators. Icahn also questioned whether the board could hold management accountable, since many directors have been in place for over a decade.

In a statement announcing the deal, Southwest Gas Chief Executive John Hester said Questar will provide "significant financial and strategic benefits to our company, shareholders, employees and partners". The statement did not address Icahn's letter and Southwest Gas did not reply to a request for comment on the letter.

Shares in Southwest Gas, which serves more than 2 million customers in Arizona, California and Nevada, initially spiked almost 8% on news of the letter, first reported by The Wall Street Journal, before giving up some gains. They closed6.6% higher at $70.42, valuing the company at $4.16 billion.

Questar's natural gas pipeline and storage network spans Colorado, Utah and Wyoming. Its 1,867 miles (3,005 km) of pipeline connects to other pipeline systems in the West and Midwest United States, while the company also owns the Clay Basin storage facility, the largest underground storage reservoir in the Rocky Mountains, according to its website.

In March, Ohio-focused utility FirstEnergy Corp (FE.N) said it would add two members backed by Icahn to its board.

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Reporting by Svea Herbst-Bayliss in New York and Sahil Shaw in Bengaluru; Writing by David French; Editing by Maju Samuel, Nick Zieminski, Marguerita Choy and David Gregorio

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