Oil's Merger Meltdown

The giant oil deal is still alive, barely.

They say rainfall on a wedding day is good luck. If it's oil that's falling and you're in the business, it's anything but.

In the almost four months since midstream heavyweights Energy Transfer Equity LP and Williams Cos. agreed to get hitched, both their stocks have taken a nosedive  (they declined more than 60 percent through Wednesday before rebounding some Thursday). Some investors are speculating that the nearly $40 billion merger, which was expected to close in the first half of this year, will get called off or renegotiated, after oil unexpectedly and painfully dropped below the $30-a-barrel level this week.

Deal or No Deal?

The market is showing doubt that the merger will get done with the current terms.

Source: Bloomberg

Shareholders are still awaiting word from Energy Transfer and Williams on this. With oil where it is, the current cash-and-stock offer may not be fair or even feasible. As of Tuesday, the companies weren't discussing revised terms, CNBC's David Faber reported. But that was Tuesday. 

While the deal appears on shaky ground, it may be too soon to call an end to it. In mid-February, both companies are slated to report fourth-quarter earnings and give their outlooks for the year. Sachin Shah, a special situations analyst at Albert Fried & Co. who has been covering the deal, says Energy Transfer will probably have to lower the $45.52-a-barrel forecast that the company previously gave for 2016. But with these results and revised outlooks, the parties will be in a better position to come up with new deal terms. And it's always possible that oil prices stabilize a bit during the next few weeks, so it would be hasty to do anything just yet.

Bottom of the Barrel

These are the worst-performing stocks in the S&P 500 Energy Index during the past six months. Williams is dead last with a 76 percent loss, while the basket declined 26 percent.

Source: Bloomberg

Energy Transfer, run by billionaire Kelcy Warren, had a tough time getting Williams to agree to the deal in the first place. So Williams isn't going to be keen on revised merger terms, which some speculate could involve removing the cash payment and offering only stock. That said, if Williams wants to end this deal, it may have to cough up $1.48 billion for leaving Energy Transfer at the altar. Williams had less than $200 million of cash as of September, and its debt was almost 5 times the amount of Ebitda analysts projected it'd generate this year, according to data compiled by Bloomberg. 

Their merger agreement also stipulates other circumstances in which the termination of a deal would instead involve Energy Transfer reimbursing Williams $410 million for the fee it had to pay to end an earlier deal with Williams Partners LP. Following in Kinder Morgan's footsteps, Williams had been planning to consolidate the pipeline master-limited partnership until Energy Transfer made the offer for the parent. 

Oil may be the dead fat guy who ruins this wedding, but the nuptials are still on -- for now. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tara Lachapelle in New York at tlachapelle@bloomberg.net

    To contact the editor responsible for this story:
    Beth Williams at bewilliams@bloomberg.net

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