- Traders speculate that Delaware Judge Will Rule for ETE
- Merger arbitrage spread jumped to a record high this week
Wall Street is placing bets that Energy Transfer Equity LP will defeat Williams Cos. in court and walk away from the companies’ multibillion-dollar merger without paying a breakup fee.
The spread traded by those speculating on whether the deal will fall apart reached a record high Wednesday after the pipeline giants spent two days sparring in Delaware’s Court of Chancery. Judge Sam Glasscock said Tuesday a key issue is whether lawyers from Latham & Watkins LLP, who were hired to assess the tax implications of the deal, acted in “good faith” when they concluded it was marred by complications.
Traders, it appears, think Williams didn’t prove otherwise.
“We believe ETE won,” Timm Schneider, an analyst at Evercore ISI, said Tuesday in a note to clients. “We do NOT believe there was enough evidence that would lead the judge to rule Latham acted in ‘bad faith.”’
He also said ETE is “probably is in a better position NOT to make some sort of payment to WMB to ‘walk away.”’
A Williams spokesman and an Energy Transfer spokeswoman did not immediately respond to phone and e-mail requests seeking comment.
Energy Transfer agreed last September to pay $43.50 a share in either cash or stock, valuing the merger at $32.9 billion. The global plunge in oil prices wiped out almost half the value of both companies, throwing into question the economics of the transaction and casting doubt on its completion.
Glasscock won’t issue a ruling until Friday, he said Tuesday in court. His decision may end a monthslong ordeal that has seen Energy Transfer and Williams battle each other both in and out of court over a deal that’s soured since it was announced.
To be sure, he could still side with Williams over the tax issue, which emerged as a potential spoiler this spring. Latham & Watkins says the deal’s structure risks triggering corporate taxes and so the firm can’t render a necessary opinion for the deal to close.
Williams argued that Latham withheld the opinion because its client, Energy Transfer, was looking for a way out of the merger. On Tuesday, Williams witness Howard Abrams, a University of San Diego law professor specializing in tax issues, testified that he thinks Latham’s conclusion isn’t "their true and independent opinion.”
Williams may also still win on its contention that Energy Transfer breached the merger pact when it held a private offering this spring.
“If the court finds a way to credit both sides’ arguments, then it may reach an opinion that gives both something instead of declaring either party an outright winner,” Brandon Barnes, an analyst at Bloomberg Intelligence, said in a note Wednesday.
Energy Transfer was up 3.5 percent at 1:22 p.m. Wednesday in New York trading after jumping 17 percent on Tuesday. Williams was down 3.4 percent after falling 2.9 percent the day before.