Energy Transfer Said to Affirm Williams Deal on Same Terms

Updated on
  • Pipeline company could announce commitment this week
  • Quarterly distribution unchanged for first time since 2012

Energy Transfer Equity LP plans to move forward with its $32.9 billion takeover of Williams Cos. without altering the terms of the deal, according to people familiar with the matter, despite analysts and investors speculating the transaction may have to be reworked given the rout in energy prices.

The Dallas-based pipeline conglomerate now intends to cover some of the cost of the cash-and-stock deal by making lower-than-expected quarterly distributions to unit holders, said one of the people, who asked not to be identified because the matter is private.

When the deal was announced in September, Energy Transfer said it would be “immediately accretive” to distributions. It has forecast that the combination would help it continue to grow distributions by more than 25 percent in coming years, according to data compiled by Bloomberg. It’s not clear how much lower it expects growth to be now, the people said.

Energy Transfer left its quarterly distribution unchanged at 28.5 cents per unit, according to a statement issued after regular markets closed Wednesday. It is the first time since October 2012 it had not raised the dividend or split stock, according to data compiled by Bloomberg.

The company may release a statement re-affirming its commitment to the deal as soon as this week, the people said. Williams said it was committed to the deal earlier this month. Representatives for Energy Transfer and Williams declined to comment.

Takeover Fight

Energy Transfer won a nine-month takeover fight by offering $43.50 apiece for Williams shares in September. The declining value of both Energy Transfer and Williams since the deal was announced has fueled speculation about whether the transaction will actually be completed: Williams’s shares have fallen about 50 percent while Energy Transfer’s partnership units have declined about 58 percent.

Energy Transfer fell 10.6 percent to $8.85 in New York Wednesday after dropping as much as 14 percent. Williams pared a loss of as much as 10.6 percent to close down 5.6 percent at $19.27.

Concerns about the deal are centered on the $6 billion in debt that Energy Transfer is taking out to pay for some of Williams in cash. That debt could be increasingly hard for the company to manage as lower energy production translates into lower volumes -- and cash flow -- across its post-merger network of 104,000 miles of oil and gas pipelines.

The companies should eliminate the cash portion of the deal, Tim Schneider, an analyst with Evercore Partners Inc., said in a research note in December. Other analysts have said that getting rid of the cash would be unappealing to Williams investors, who have to approve the deal.

Energy Transfer Partners LP, the publicly traded unit that provides most of the parent’s cash, also maintained its payout of $1.055 a unit and said it will cut 2016 spending on expansion by at least $750 million to $4.2 billion, according to the statement Wednesday. It it also may sell assets and raise project capital for a proposed Bakken Pipeline from North Dakota to reduce partnership spending.

The budget cuts and distribution standstill can help Energy Transfer finance the Williams deal as well as pay for expansions by the group of partnerships, Michael Kay, a Bloomberg Intelligence analyst, said by phone Wednesday.

“It was a foregone conclusion they weren’t going to raise the payout 25 percent this year,” Kay said. “This could open up a little more cash to flow to Williams Partners or to Energy Transfer Partners if they need to.”