Energy Transfer `Can't Close' Williams Deal Given Tax Issue

  • Tax situation came as surprise, general counsel says
  • Company isn't changing message, it's just getting louder: TPH

Energy Transfer Equity LP said its multibillion-dollar takeover of Williams Cos. is in danger of falling apart because it hasn’t secured a necessary tax opinion saying the deal would free shareholders from liabilities.

“I’d like to be direct: We can’t close,” Chief Executive Officer Kelcy Warren said on the company’s first-quarter earnings call on Thursday. “We don’t have a transaction that can close.”

The comments are the latest escalation of Energy Transfer’s acrimonious takeover of Williams, with each suing the other for allegedly breaching obligations. The pipeline giants disagree over whether Energy Transfer should qualify for the “721 opinion,” which would deem the transaction an exchange that frees shareholders from tax liabilities. Energy Transfer would also prefer to restructure the deal so that it only involves equity and has no cash component, Warren said.

Related: Look, Energy Transfer Just Can’t Buy Williams: Gadfly

“It was as colorful as you can get, but I’m not sure there was any information embedded in that that was useful or changed anything,” said Brandon Blossman, an analyst at Tudor Pickering Holt & Co. “He’s not changing the messaging at all. He’s just saying it louder.”

Company ‘Perplexed’

Energy Transfer said either party can walk away from the deal after a June 28 deadline, but that it’s “not focused” on that right now. The company was “perplexed” when it learned from adviser Latham & Watkins LLP that it couldn’t get the 721 opinion, according to Thomas Mason, Energy Transfer’s general counsel.

"It was a light bulb kind of thing that came up a few weeks ago,” Mason said.

Energy Transfer jumped as much as 9.6 percent, and was up 7 percent at $13.05 as of 12:50 p.m. in New York. Williams gained 4.8 percent to $20.17. The deal was valued at $32.9 billion when it was announced in September.

Williams’ board is “unanimously committed to enforcing its rights” under the merger agreement and “delivering the benefits” of the deal to Williams’s shareholders, John Porter, head of investor relations, said at the start of the company’s earnings call Thursday. The company declined to answer any questions about the deal.

Meanwhile, Energy Transfer said on its call that Latham had looked for a solution to the problem but had failed to find one. The company said it had sought out other legal advisers that reached the same conclusion.

The conflict between the two pipeline giants has increased doubts that the merger will close as the collapse in oil prices has already weighed on their stocks. Energy Transfer offered $43.50 apiece for Williams shares last September.

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