Southwest Gas Holdings, Inc. · NYSE:SWX
Southwest Gas — Proxy Contest (December 2021)
59 slides from Southwest Gas's proxy contest presentation, Dec 15, 2021
Slide 1: Southwest Gas Holdings, Inc. New Board Plan
Exhibit 1 ICAHN ENTERPRISES L.P. Southwest Gas Holdings, Inc. (“SWX”) New Board Plan December 2021
Slide 2: Management Plan: Long-Term Share Price Underperformance
Management Plan: Long-Term Share Price Underperformance SINCE HESTER BECAME CEO, SWX’S SHARE PRICE MATERIALLY UNDERPERFORMED PEERS. Regulated Gas LDC Peers Note: As of 12/13/21.
Slide 3: Management Plan: Long-Term Share Price Underperformance vs Utility Services Peers
Management Plan: Long-Term Share Price Underperformance EVEN MORE SHOCKING WHEN CONSIDERING PERFORMANCE OF UTILITY SERVICES PEERS! Utility Services Peers Note: As of 12/13/21.
Slide 4: Management Plan: M&A Diversification
Management Plan: M&A Diversification WE BELIEVE THE BOARD AND MANAGEMENT ARE INTENTIONALLY RUNNING A COUNTER-TREND M&A DIVERSIFICATION STRATEGY TO DISTRACT FROM OPERATIONAL UNDERPERFORMANCE. Industry Trend is to Simplify by Selling Non-Core Assets. SWX is Pursing a Conglomerate Structure of Unrelate
Slide 5: Management Plan: Questar Pipelines Deal
Management Plan: Questar Pipelines Deal OVER-PRICED, UNDER-THOUGHT, NO SYNERGIES, DILUTIVE TO GROWTH (AND SOMEHOW MAYBE EVEN TO EPS). THE QUESTAR DEAL IS SIMPLY A DISASTER. Why pay $300M more than Warren Buffet? He had so many synergies that his deal was blocked. SWX is going to have to increase cos
Slide 6: Management Plan: Acquisitions Without Accretion
Management Plan: Acquisitions Without Accretion MANAGEMENT’S RECENT 5-8% EPS GROWTH GUIDANCE IS WITHIN INDUSTY NORMS. WHAT HAPPENED TO THE ACCRETION FROM THE LAST TWO LARGE DEALS? In a little over 3 months, SWX purchased two companies totaling $2.8 billion in value vs. a current market cap of ~$4 bi
Slide 7: Management Plan: Credit Rating Downgrades
Management Plan: Credit Rating Downgrades DEBT-HEAVY ACQUISITIONS IN NON-REGULATED INDUSTRIES HAVE LED TO CREDIT RATING DOWNGRADES. Note: Emphasis added.
Slide 8: Management Plan: Perpetual Optionality Without Accountability
Management Plan: Perpetual “Optionality” Without Accountability MANAGEMENT HAS BEEN TALKING ABOUT “OPTIONALITY” AT CENTURI SINCE 2014. WE BELIEVE THEY WILL CONTINUE TALKING AND NOTHING MORE. 2Q14 Earnings Call: Analyst: “are you being approached by any private equity or any other type of bankers reg
Slide 9: Opportunity: Improve Return on Equity
Opportunity: Improve Return on Equity (“ROE”) SWX adjusted for excess COLI income. Unadjusted ROE of 7.5% as per SWX. AZ & NV 2020 Utility ROEs(1) SWX HAS THE LOWEST ROE OF UTILITIES IN ARIZONA AND NEVADA. THERE IS NO JUSTIFICATION EXCEPT FOR MANAGEMENT.
Slide 10: Opportunity: Reduce General and Administrative Costs
G&A HAS GROWN 42% SINCE HESTER BECAME CEO. THIS SEEMS HIGH! SOME IS LIKELY LEGITIMATE BUT... Opportunity: Reduce General and Administrative Costs Utility G&A Hester’s Added Cost
Slide 11: Nevada Public Utilities Commission filing excerpts
Source: State of Nevada Public Utilities Commission filings (2018-2020). “Staff believes SWG needs to change its culture to be a better steward of ratepayer money, which begins by holding SWG’s Senior Executives accountable for the including of such invoices, costs and expenditures without thorough
Slide 12: Opportunity: Long-Term Cost Improvement
Opportunity: Long-Term Cost Improvement Excludes Fuel Costs, Depreciation and Amortization and Taxes Other Than Income. SWX’S OPEX PER CUSTOMER IS FAR FROM INDUSTRY LEADERS. 2020 Total OPEX Per Customer(1)
Slide 13: Opportunity: Compensation For Performance
Opportunity: Compensation For Performance (Not for Getting Bigger) NEO Compensation(1) Excludes “Change in Pension Value and Non-Qualified Deferred Compensation.” … AND MANAGEMENT HAS DECIDED TO PAY THEMSELVES MORE. COMPENSATION INCREASED 25% AND 27% IN 2019 AND 2020. CEO HESTER WAS PAID $6.5M IN 20
Slide 14: New Board Plan: Experienced Director Slate
New Board Plan: Experienced Director Slate EXPERIENCED. QUALIFIED. DIVERSE. Ten new directors including former Chairs, CEOs, CFOs, EVPs, GMs, MDs, FERC and State Regulatory Commissioners At least three nominees are qualified to be an interim or permanent CEO The two IEP nominees already serve on ano
Slide 15: New Board Plan: Independent Directors
New Board Plan: Independent Directors EIGHT OF THE TEN DIRECTOR NOMINEES ARE INDEPENDENT OF IEP. No prior affiliation or overlapping Boards with IEP No compensation agreements with IEP All ten of the directors will be fiduciaries to SWX stockholders The new Board plan described herein has been discu
Slide 16: New Board Plan: Commitment to Safety
New Board Plan: Commitment to Safety THERE IS NO HIGHER PRIORITY THAN THE SAFETY OF OUR CUSTOMERS, OUR EMPLOYEES AND THE PUBLIC. Our directors would commit to maintaining existing safety practices (at a minimum) and would bring their combined expertise to ensure that SWG is doing all that it can to
Slide 17: New Board Plan: First Days
New Board Plan: First 100 Days SWX Corporate Interim CEO selection (if needed) Evaluation and retention of existing senior management Add AZ director to Board Select Board leadership Four segment financials Segment EBITDA guidance, adj EPS (including addback of intangibles and adj. COLI income) No a
Slide 18: New Board Plan: Long-Term Plan
New Board Plan: Long-Term Plan Utility Services Pipeline Install new leadership where appropriate Implement industry best practices Grow rate base and optimize cost structure to achieve peer level ROEs Develop collaborative relationship with regulators Benefit from ~2% customer growth and modern pla
Slide 19: New Board Plan: Improve the Balance Sheet
New Board Plan: Improve the Balance Sheet IF SWX MONETIZED ITS SOON TO BE ACQUIRED PIPELINE UNIT AND ITS SERVICES UNIT (“CENTURI”), WE ESTIMATE IT COULD RETIRE ALL HOLDCO DEBT AND HAVE $1.1-$2.6 BILLION OF CASH TO FUTURE PROOF THE BUSINESS. Management’s plan includes completing the Questar Pipeline
Slide 20: New Board Plan: Utility Improvements
New Board Plan: Utility Improvements Why did G&A increase 42% since Hester became CEO? With ~2% customer growth, why is OPEX per customer not declining? How does adding holdco leverage, declining credit ratings and non-core assets increase the investment capacity and flexibility at the utility? Is t
Slide 21: New Board Plan vs. Management Plan
New Board Plan vs. Management Plan NEW DIRECTORS COULD UNLOCK THE VALUE INHERENT IN SWX’S HIGH POTENTIAL ASSET BASE. Management Plan New Board Plan Corporate Status Conglomerate Stand-alone entities Credit Ratings Downgrades Upgrades Areas for Investment Long-haul natural gas pipelines in new states
Slide 22: Value Creation Potential
Value Creation Potential IF SHAREHOLDERS ACT, SIGNIFICANT SHARE PRICE APPRECIATION IS POSSIBLE. IF WE DO NOT, CONTINUED HIGH-RISK LOW-RETURN ACTIONS WILL INEVITABLY LEAD TO CALAMITY. See Appendix for supporting calculations
Slide 23: Appendix: IEP & FirstEnergy Case Study
Appendix: IEP & FirstEnergy (“FE”) Case Study 02/18/21: FE announced that IEP was a shareholder 03/16/21: FE announced that two Icahn executives (the same two nominated at SWX) have joined the Board. There was no public dispute Since our involvement, FE sold a 20% stake in a business unit at record
Slide 24: Appendix: Selling Non-Utility Assets Improves Balance Sheet
Appendix: Selling Non-Utility Assets Improves Balance Sheet $1.6 billion of committed deal financing adjusted for $1 billion of future “equity and equity-linked” implies $600M of holdco debt financing as per SWX financing plan released on 10/5/21.
Slide 25: Appendix: LT EPS Growth Calcs
Appendix: LT EPS Growth Calcs LTM Utility EPS of $182M and 58.2M shares as per SWX 3Q21 10-Q filing. EPS growth from ROE Improvement and EPS growth from yet to be Approved CAPEX in subsequent slides. SWX provided guidance of 5-8% EPS growth in 2022 and 2023. However, we believe there is potential fo
Slide 26: Appendix: Calculations for Potential SWX Share Price Upside
SWX’s regulated utility peers, Atmos Energy (NYSE: ATO), NiSource (NYSE:NI) and ONE Gas (NYSE: OGS) currently trade at an average multiple of 19.2x earnings per share. If SWX’s utility operations were valued at the same multiple that implies a $59 share price We also believe that SWX’s services busi
Slide 27: Appendix: Calculations for Potential SWX Share Price Upside
Appendix: Calculations for Potential SWX Share Price Upside We believe there is the potential for an additional $16 per share in increased profits and an additional $9 per share through increases in rate base SWX’s 2020 ROE adjusted for COLI income was 7.1% (7.5% unadjusted). $16 per share assumes t
Slide 28: Appendix: Calculations for Potential SWX Share Price Upside
Appendix: Calculations for Potential SWX Share Price Upside Details as to “Yet to be Approved CAPEX” or “Missing Capital” are below Capital expenditures must be approved by regulators to be included in SWX’s utility rate base
Slide 29: Additional Information; Participants in the Solicitation
Additional Information; Participants in the Solicitation Additional Information and Where to Find It; Participants in the Solicitation and Notice to Investors SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY CARL C. ICAHN AND HIS
Slide 30: Forward-Looking Statements; Special Note Regarding Presentation
Forward-Looking Statements; Special Note Regarding Presentation Forward-Looking Statements Certain statements contained in this presentation are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue
Slide 31: Customers Should Not Suffer From Poor Management and Bad Decisions
Exhibit 2 ICAHN ENTERPRISES LP. Southwest Gas Holdings (“SWX”) Customers Should Not Suffer From Poor Management and Bad Decisions December 2021
Slide 32: Introduction
Introduction SOUTHWEST GAS (“SWX”) IS IN A PUBLIC DISPUTE WITH ICAHN ENTERPRISES L.P. (“IEP”). THIS PRESENTATION DISCUSSES THE IMPACT TO CUSTOMERS. Situation Overview The “Status Quo” and “Why this Matters to Customers” Poor management + bad decisions = higher costs over the long term for customers
Slide 33: Situation Overview
Situation Overview IEP HAS LAUNCHED A PROXY CONTEST TO REPLACE SWX’S BOARD. IEP HAS ALSO LAUNCHED A TENDER OFFER TO BUY ANY AND ALL SHARES. Southwest Gas Corp. (“SWG”) is a subsidiary of Southwest Gas Holdings, Inc. (“SWX”) Icahn Enterprises L.P. (“IEP”) is a diversified holding company that is ~90%
Slide 34: What is a Proxy Contest? What is a Tender Offer?
What is a Proxy Contest? What is a Tender Offer? IEP IS PURSUING A PROXY CONTEST AND A TENDER OFFER. WE ARE LOOKING TO INFORM AND RECEIVE INPUT FROM THE STATES AS TO PATH FORWARD. Proxy Contest IEP has nominated ten candidates for election as directors to the Board of Directors of SWX, who, if elect
Slide 35: Why Does This Matter to Arizona, California and Nevada?
Why Does This Matter to Arizona, California and Nevada? POOR MANAGEMENT AND BAD DECISIONS INCREASE COSTS FOR CUSTOMERS. SWG’s general and administrative expenses increased 42% under current CEO Hester’s watch. These expenses include million-dollar homes, manicures and golf memberships. Executive com
Slide 36: Status Quo: General and Administrative Costs Are Too High
GENERAL AND ADMINISTRATIVE EXEPENSES HAVE GROWN 42% SINCE HESTER BECAME CEO. THIS SEEMS HIGH! SOME IS LIKELY LEGITIMATE BUT... Status Quo: General and Administrative Costs Are Too High Utility General & Administrative Expenses Hester’s Added Cost
Slide 37: Nevada Public Utilities Commission filing excerpts
Source: State of Nevada Public Utilities Commission filings (2018-2020). “Staff believes SWG needs to change its culture to be a better steward of ratepayer money, which begins by holding SWG’s Senior Executives accountable for the including of such invoices, costs and expenditures without thorough
Slide 38: Status Quo: Management Compensation is Increasing Rapidly
Status Quo: Management Compensation is Increasing Rapidly NEO Compensation(1) Excludes “Change in Pension Value and Non-Qualified Deferred Compensation.” … AND MANAGEMENT HAS DECIDED TO PAY THEMSELVES MORE. COMPENSATION INCREASED 25% AND 27% IN 2019 AND 2020. CEO HESTER WAS PAID $6.5M IN 2020.
Slide 39: Status Quo: Credit Rating Downgrades
Status Quo: Credit Rating Downgrades INCREASING GENERAL AND ADMINISTRATIVE EXPENSES IS NOT THE ONLY PROBLEM. DEBT-HEAVY ACQUISITIONS IN NON-REGULATED INDUSTRIES HAVE LED TO CREDIT RATING DOWNGRADES. CREDIT DOWNGRADES => HIGHER INTEREST => HIGHER CUSTOMER BILLS. Note: Emphasis added.
Slide 40: Status Quo: Questar Pipelines Deal
Status Quo: Questar Pipelines Deal THE QUESTAR DEAL MADE NO SENSE FOR SHAREHOLDERS AND CUSTOMERS. IT ADDS DEBT, RISK AND DISTRACTION. INSTEAD, SWX SHOULD BE PREPARING FOR ENERGY TRANSITION. How does buying a natural gas pipeline from S.W. Wyoming and W. Colorado to Utah benefit the customers of Ariz
Slide 41: Status Quo: Current SWX Board Has Minimal Utility Experience
Status Quo: Current SWX Board Has Minimal Utility Experience SWX’S BOARD IS TRYING TO COVER UP ITS INABILITY TO HOLD MANAGEMENT ACCOUNTABLE BY MAKING MODEST CHANGES. THIS IS NOT ENOUGH.
Slide 42: Our Plan: Experienced & Independent Director Slate
Our Plan: Experienced & Independent Director Slate EXPERIENCED. QUALIFIED. DIVERSE. INDEPENDENT. Ten new directors including former Chairs, CEOs, CFOs, EVPs, GMs, MDs, FERC and State Regulatory Commissioners Eight of the ten directors are independent of IEP. No prior affiliation or overlapping Board
Slide 43: Our Plan: Commitment to Safety
Our Plan: Commitment to Safety THERE IS NO HIGHER PRIORITY THAN THE SAFETY OF OUR CUSTOMERS, OUR EMPLOYEES AND THE PUBLIC. Our directors would commit to maintaining existing safety practices (at a minimum) and would bring their combined expertise to ensure that SWG is doing all that it can to mainta
Slide 44: Our Plan: Likely Steps
Our Plan: Likely Steps SIMPLIFY THE BUSINESS STRUCTURE. OPTIMIZE THE REGULATED UTILITY. We believe our directors will: Act as real fiduciaries to all stakeholders with respect to holding this (or new) management accountable for performance Evaluate IEP’s tender offer and, assuming they determine the
Slide 45: Our Plan: Improve the Balance Sheet
Our Plan: Improve the Balance Sheet IF SWX MONETIZED ITS SOON TO BE ACQUIRED PIPELINE UNIT AND ITS SERVICES UNIT (“CENTURI”), WE ESTIMATE IT COULD RETIRE ALL HOLDCO DEBT AND HAVE $1.1-$2.6 BILLION OF CASH TO FUTURE-PROOF THE BUSINESS. Management’s plan includes completing the Questar deal and adding
Slide 46: Our Plan: Affiliate Transactions No Longer A Worry
Our Plan: Affiliate Transactions No Longer A Worry ASSET SALES WOULD BETTER INSULATE THE BALANCE SHEET, AND WOULD ALSO REMOVE ANY CHANCE THAT CUSTOMERS ARE BEING OVER-CHARGED BY SWX’S SERVICE DIVISION. Centuri provides pipeline maintenance and other modernization services to SWG and other utilities
Slide 47: Our Plan: Customer Savings
Our Plan: Customer Savings WE ESTIMATE THAT OUR SLATE COULD DELIVER CUSTOMER SAVINGS OF AT LEAST $9 PER YEAR OVER THE NEXT 10 YEARS WITH THE POTENTIAL FOR MUCH MORE. Simplifying the balance sheet through asset sales would leave residual cash to restore the balance sheet back to its prior credit rati
Slide 48: Our Plan: Customer Service
Our Plan: Customer Service WE BELIEVE SWX’S ALREADY HIGH CUSTOMER SERVICE SCORES COULD GO EVEN HIGHER. Currently, SWG’s JD Power Customer Service scores are high vs. industry standards We are committed to maintaining and improving SWG’s already high performing customer service scores As SWG’s cost s
Slide 49: Our Plan: AZ Representation
Our Plan: AZ Representation UPON WINNING, OUR NOMINEES WOULD LOOK TO ADD A BOARD MEMBER FROM ARIZONA. MR. ADAME IS ONE PARTICULARLY STRONG CANDIDATE. David Adame serves as President and CEO of Chicanos Por La Causa (“CPLC”), one of the nation’s largest community development corporations CPLC operate
Slide 50: Why is IEP Doing This?
Why is IEP Doing This? ECONOMICALLY INCENTIVIZED AND ALIGNED. IEP believes that SWX’s share price is very undervalued. We believe SWX’s share price could increase if SWX simplifies its business into a strictly state-regulated natural gas LDC As a standalone entity, SWX management will not be distrac
Slide 51: Appendix: IEP Overview
Appendix: IEP Overview Icahn Enterprises L.P., a master limited partnership (NASDAQ: IEP), is a diversified holding company engaged in seven primary business segments: Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma (Metals segment divestiture pending) Legendary
Slide 52: Appendix: IEP Overview (Cont.)
Appendix: IEP Overview (Cont.) Mr. Icahn began his career on Wall Street in 1961 and has become one of the most influential investors in America. He has taken substantial or controlling positions in many companies, including: RJR Nabisco, TWA, Texaco, Phillips Petroleum, Viacom, Marvel, Revlon, Imcl
Slide 53: Appendix: FirstEnergy Case Study
Appendix: FirstEnergy (“FE”) Case Study 02/18/21: FE announced that IEP was a shareholder 03/16/21: FE announced that two Icahn executives (the same two nominated at SWX) had joined the Board. There was no public dispute Since our involvement, FE sold a 20% stake in a business unit at record valuati
Slide 54: Appendix: Proxy and Tender Offer Timeline
Appendix: Proxy and Tender Offer Timeline Proxy Contest: IEP has provided official notice to SWX management regarding the IEP director slate Election to be held at SWX’s 2022 Annual Meeting, which is expected to occur in May, with elected Board sitting shortly thereafter Tender Offer: Current Tender
Slide 55: Appendix: Selling Non-Utility Assets Improves Balance Sheet
Appendix: Selling Non-Utility Assets Improves Balance Sheet $1.6 billion of committed deal financing adjusted for $1 billion of future “equity and equity-linked” implies $600M of holdco debt financing as per SWX financing plan released on 10/5/21.
Slide 56: Appendix: Interest Savings Calculation
Appendix: Interest Savings Calculation Pre-tax basis. Increase in debt in 2021 and beyond is equal to average of 2018-2020 increase.
Slide 57: Appendix: Remaining OPEX and Capital Efficiency Savings
Appendix: Remaining OPEX and Capital Efficiency Savings Pre-tax basis.
Slide 58: Additional Information; Participants in the Solicitation
Additional Information; Participants in the Solicitation Additional Information and Where to Find It; Participants in the Solicitation and Notice to Investors SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY CARL C. ICAHN AND HIS
Slide 59: Forward-Looking Statements; Special Note Regarding Presentation
Forward-Looking Statements; Special Note Regarding Presentation Forward-Looking Statements Certain statements contained in this presentation are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue
Southwest Gas Holdings — Proxy Contest (December 2021) on 6ix