Williams Cos. rejected a $48 billion stock-based takeover offer from pipeline magnate Kelcy Warren that aims to derail consolidation of the North American natural gas and oil hauler.
Williams hired banks to explore alternatives to the offer that it said undervalued the group, according to a statement on Sunday that didn’t identify the bidder. The offer was valued at $64 a share, a 32 percent premium to Friday’s closing price, Energy Transfer Equity LP said in a statement, confirming it was the bidder. Including debt and other liabilities, the offer is worth $53.1 billion, according to the statement.
Should a deal be done it would rank near the largest in the pipeline industry. The biggest so far is Kinder Morgan Inc.’s consolidation of its partnership assets last year that was valued at $48.9 billion when announced, according to data compiled by Bloomberg.
“With Williams clearly potentially open for a sale, there will be a question as to whether others will join the bidding,” Abhiram Rajendran, a New York-based analyst for Credit Suisse Group AG, wrote Sunday in a note to clients. He called the possibility “remote.”
Energy Transfer could raise its bid for Williams to around $70 share, a number that would be difficult for Williams shareholders to reject and too high for Kinder Morgan and Enterprise Products Partners LP to match, he wrote. The target price for Williams shares by Credit Suisse is $65. It rates them at the equivalent of a buy.
The Energy Transfer offer depends on Williams abandoning its own pending $14 billion purchase of the units it doesn’t already own in Williams Partners LP, which feeds gas and crude from wells to larger pipeline systems.
“A combination of Williams’ assets with Energy Transfer Equity will create substantial value that would not be realized otherwise,” Warren said in a statement. “Williams’ management has inexplicably ignored Energy Transfer Equity’s efforts to engage in a discussion.”
Williams hired Barclays Plc and Lazard Ltd. to assist in its review of strategic alternatives, including a potential merger, sale of the company or continued pursuit of the existing operating and growth plan.
Williams rose 26 percent to $60.86 at the close in New York, the highest in more than 30 years. Williams Partners fell 7.6 percent to $49.10 and Energy Transfer fell 4.9 percent to $65.06.
“Our board believes it is in the best interest of shareholders to conduct a thorough evaluation of strategic alternatives,” Alan Armstrong, chief executive officer of Williams, said in the statement.
Rival pipeline companies such as Kinder Morgan and Williams have begun consolidating their convoluted structures to reduce the need for payouts among affiliates. Warren has stuck with the master-limited partnership form, saying last month that his company needs both outside acquisitions and expansions of its pipeline system.
The consolidation would allow Williams to increase dividends, lower borrowing costs and steer more cash into expansion projects.
Warren, a 59-year-old University of Texas-trained engineer, began building a pipeline empire in the 1990s that is now large enough to circle the earth’s equator almost three times. With a net worth estimated at $7.2 billion, he is the 66th richest American, according to data compiled by Bloomberg.