Lawsuits Mount as Energy Transfer’s Williams Bid Falters

  • Williams deal was valued at $32.9 billion when first announced
  • ‘This deal is too far gone to salvage,’ analyst reiterates

Tensions between William Cos. and its would-be buyer Energy Transfer Equity LP intensified after Williams said it had filed a third lawsuit related to the souring merger. Energy Transfer fired back on Sunday, accusing its takeover target of trying to gain leverage.

Natural gas pipeline operator Williams said in a statement late Friday that it had asked a court to keep Energy Transfer from pulling out of the merger pact the two made last September. Energy Transfer Chief Executive Officer Kelcy Warren described the action in his own statement as “an attempt to gain undue leverage,” warned that it will delay the transaction and said Williams was trying to limit contact with its board members.

The clash is only the latest twist in what has become one of the most contentious energy mergers pending in the U.S. Eight months ago, the deal between Energy Transfer and Williams was valued at $32.9 billion. The ensuing plunge in oil prices dragged down both of the companies’ stocks by almost 60 percent, throwing into question the economics of the transaction, straining discussions between the two and casting doubt on the merger’s completion.

Energy Transfer has breached the merger agreement “through a pattern of delay and obstruction designed to allow” the buyer to avoid its commitments, Williams said. In its latest lawsuit, filed under seal in the Delaware Court of Chancery, Williams said it specifically asked that Energy Transfer be barred from using a June 28 closing deadline or a tax opinion it has failed to get to avoid holding up its end of the deal.

Williams is already fighting Energy Transfer and Warren in court over a private offering they held without its blessing earlier this year.

In response to the most recent legal action, Warren said Energy Transfer was “disappointed” that Williams was filing lawsuits “rather than seriously engaging in discussions” on the transaction. He also encouraged Williams’ board to reconsider its recommendation that stockholders vote to approve the merger.

This latest suit brings “no change to our belief that this deal is too far gone to salvage,” Brandon Blossman, an analyst at Tudor Pickering Holt & Co., said Monday in a note to clients.

Williams shares rose 44 cents, or 2.3 percent, to $19.79 at 9:33 a.m. in New York trading. Energy Transfer jumped 21 cents, or 1.7 percent, to $12.85.

In a May 5 call, Warren repeated seven times in a response to an analyst that the deal couldn’t close in its current form. In what has proven to be Energy Transfer’s most compelling argument against the merger’s completion, he stressed that the company couldn’t move forward without a “721 opinion” that would deem the merger an exchange that frees shareholders from tax liabilities.

Warren repeated yet again in his statement Sunday that the merger can’t close without the opinion, even if Williams stockholders approve the deal in a vote. A spread traded by those betting on whether the merger will fall apart has doubled in the past month.

Energy Transfer “will continue to comply with its obligations under the merger agreement,” Warren said, “while also having to defend itself against these multiple lawsuits filed by Williams.”

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