Oct 6, 2021 - Economy

Carl Icahn's next pipeline play

Illustration of a check mark on a pipe.

Illustration: Sarah Grillo/Axios

It's not too often that a multi-billion dollar merger gets signed despite the best efforts of both Warren Buffett and Carl Icahn.

Driving the news: Southwest Gas (NYSE: SWX) agreed to acquire Questar Pipeline Co. for nearly $2 billion in cash from Dominion Energy (NYSE: D). The purchase price includes around $430 million in assumed debt.

If Questar sounds familiar, it's because Buffett's Berkshire Hathaway Energy last year agreed to buy it, as part of a larger purchase from Dominion, but bailed in July due to worries about antitrust objections. The rest of its Dominion deal closed, with Questar carved out.

  • Dominion then launched a new sale process for Questar, which operates over 2,000 miles of natural gas pipelines (plus underground storage) in Utah, Wyoming and Colorado.
  • On Sunday night, Reuters reported that Southwest Gas was in advanced talks to buy Questar.

Hours before the official merger announcement between Southwest and Dominion, activist investor Carl Icahn made two announcements. First, that he holds nearly a 5% stake in Southwest Gas. Second, that he objects to Southwest buying Questar (an objection that didn't stop Southwest or Dominion from issuing their press release).

  • Like most Icahn letters, this one took direct aim at what he views as managerial mistakes: "During the past few years, management of SWX has made a number of egregious errors at the expense of shareholders. However, the purchase of Questar you are currently being rumored to make at the price you are willing to pay will make all past errors pale in comparison."
  • Icahn added: "It also appears that other shareholders agree with our assessment, given the 7.5% price decline this morning – an amazing and unusual decline for a regulated utility." It should be noted, however, that the shares later recovered (and then some).

The bottom line: Buffett and Icahn have very little in common, in terms of personality or investment philosophy. But they may get to share a sense of disappointment related to Questar, as Icahn came up empty the last time he bought into an energy company and tried to stop it from making a major purchase.

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