Billionaire Kelcy Warren is pushing back against the ground rules for participating in an auction for Williams Cos., the pipeline operator that rebuffed his $53 billion takeover offer last month, people with knowledge of the matter said.
That’s because Williams is asking potential buyers to promise not to go hostile as a condition for getting access to its books, said the people, who asked not to be identified because the matter is private.
Williams wants potential suitors to sign what’s known as a “standstill” clause in a confidentiality agreement that would block them from buying shares, nominating directors and lobbying investors, one person said. Warren, chief executive officer of Energy Transfer Equity LP, wants to keep those options open as he presses ahead with his offer of $64 a share, the people said.
Lawyers for Energy Transfer and Williams have been haggling over the issue this week, and as of Thursday were negotiating a “fall away” provision that would nix the standstill if certain conditions were met, they said. If they can’t come to an agreement by early next week, Warren is preparing to sit out of the sale process, they said.
The back-and-forth is the latest maneuvering in a six-month takeover battle that went public two weeks ago, when Williams said it hired banks to “explore a range of strategic alternatives” after getting an unsolicited offer it deemed insufficient from an unidentified suitor. Energy Transfer identified itself as the bidder the next day.
Williams has reached out to more than 15 potential buyers since then, including other pipeline operators, integrated oil companies and utilities, according to the people familiar with the situation. At least two other suitors have signed confidentiality agreements, and Energy Transfer is the only party balking at the standstill, the people said.
Energy Transfer would prefer doing a friendly deal, and has been making overtures to Williams for months, one of the people said. It’s willing to sit out of the auction because it’s betting that no other company will be able to make a better offer, the people said. It also knows a lot about Williams because they operate in similar markets, they said.
Representatives for Williams and Energy Transfer declined to comment.
Buying Williams would enable Energy Transfer to surpass Kinder Morgan Inc. as the world’s largest pipeline company, with a combined enterprise value of $185 billion, according to an investor presentation last month.
Its strategy for forcing a deal comes down to convincing investors that its offer will create more value than a restructuring plan Williams unveiled in May, after it was first approached by Energy Transfer. Williams agreed to pay about $14 billion to take full control of its operating unit, Williams Partners LP. Williams said the move will simplify its corporate structure, reduce taxes and create more cash for expansion.
Energy Transfer’s offer is contingent on Williams abandoning that deal.
Williams investors have to approve the purchase of that subsidiary, though the shareholder vote hasn’t been scheduled yet. Energy Transfer has begun reaching out to Williams investors in a campaign to get them to reject the roll-up in favor of its offer. The idea is that if that deal falls through, Williams will be amenable to negotiating.
“We’ve been here in New York the last two days communicating with investors,” Jamie Welch, Energy Transfer’s chief financial officer, said in an interview with CNBC on June
24. “Both our own investors and Williams shareholders see the merit of what we have to offer.”
Williams, based in Tulsa, Oklahoma, closed at $57.51 Wednesday, giving the company a market value of about $43 billion. Energy Transfer’s shares closed at $63.08, giving it a market value of $34 billion. Warren also controls Energy Transfer Partners LP, which has a market value of about $26 billion.
Williams owns a big network of pipelines, processing plants and storage facilities that handle about 30 percent of natural gas that flows in the U.S., according to a company presentation in May. It is one of the top pipeline operators in the Marcellus Shale, a massive swathe of gas-producing rock on the East Coast.
Its crown jewel is the Transco pipeline, a 10,200-mile conduit that carries gas from the Gulf Coast to New York.