Kelcy Warren Is Back in Deals Game After Williams Debacle

  • Chairman steers clear of any takeovers that might get hostile
  • Acknowledges investors think Energy Transfer is ‘complicated’

Billionaire Kelcy Warren said Energy Transfer Equity LP is “gearing back up” with an acquisition strategy and that the "doors are open" for possible deals after the pipeline giant walked away from a multibillion-dollar takeover of rival Williams Cos.

While there are few big opportunities out there right now and he never wants to again try a deal that "has a sense of being hostile," Energy Transfer is still fielding plenty of interest for prospective tie-ups, Warren, the chairman and founder, said in a phone interview Friday.

“We were out of the game for about a year. And now we’re back in it and we’re building that back up," Warren, 60, said. “You need to be churning all the time before you can spit something out the back end that’s accretive to your unitholders."

Energy Transfer is looking to the future after walking away in June from its $32.9 billion takeover of Williams. The plunge in oil prices soured the economics of that deal and increased investor scrutiny over pipeline operators’ balance sheets and debt levels. The botched deal also trained investor scrutiny on Warren, who’d built a reputation as a visionary during the shale boom by piecing together a 71,000-mile (114,239-kilometer) oil-and-natural gas superhighway that spans the country. Since the Williams debacle, plenty of investors have wondered if Energy Transfer will be able to pull off other deals anytime soon.

Williams Blunder

Warren said he regrets the Williams "blunder," partly because Energy Transfer had been "on a roll" before it and quickly found itself "in a ditch." The deal should have never included a $6 billion cash component that Energy Transfer was to pay Williams, something that came up late in negotiations, he said.

“The transaction should have been all equity," he said. Had that been the case, “we’d be merged today and we’d be a healthy, large partnership."

Energy Transfer rose 2.1 percent to $17.31 as of 2:48 p.m. in New York. The stock is up 26 percent this year.

Moving forward, Warren said he knows some investors consider his Energy Transfer family too complicated. Energy Transfer Equity is a publicly traded parent that owns the general partner of three master-limited partnerships: Energy Transfer Partners LP, Sunoco Logistics Partners LP and retail gasoline business Sunoco LP.

Too Complicated?

"I like our structure because we have optionality that others that just roll everything together into one big package don’t have," Warren said. “But what matters is investors that are looking at whether they want to invest in us. And if they say we’re complicated, then it’s an issue I need to deal with."

Last week, Energy Transfer said it won’t take $720 million in special payments through 2017 from ETP. That should help ETP finance some $13 billion of capital being spent on new projects, Warren said, which include an oil pipeline out of North Dakota’s Bakken formation and a gas line plugged into the Northeast’s prolific Marcellus and Utica shale plays.

“Our unitholders count on us to push out every dollar we can to them, that’s our duty," Warren said. "When all of ETP’s growth projects come online and start creating distributable cash flow, then we will look at those distributions and determine how we allocate them going forward."

Private Offering

Energy Transfer’s facing criticism, too, over its private offering of convertible units in March that critics such as Williams said created a “superpriority” class of select investors. Warren received 57 percent of the convertible units. The move was designed, in part, to protect holders’ cash distributions even if Energy Transfer were to cut its payout to remaining shareholders following the merger, Williams argued in court in June.

On Friday, Warren said Energy Transfer originally wanted to offer the convertibles to all of its unitholders but that Williams prevented that from happening. At the time, his team had already assured ratings agencies they were going forward with the offering, he said.

"So we gathered up the people that we knew that had expressed keen interest in this in the past and we moved pretty quickly because we needed to,” he said. “We had a gun to our head to show the rating agencies how we were preparing ourselves for the ultimate merger."

Moving forward, Energy Transfer "will analyze" if it can do another private offering for investors who couldn’t take part in the March sale, Warren said. "We don’t have plans for that right now, but we will be open-minded," he said.

Williams declined to comment when contacted by phone Friday.


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