Energy Transfer Terminates $33 Billion Merger With Williamsby and
Court ruled Friday that Energy Transfer could walk away
Williams appealing decision; shareholders approved deal
Energy Transfer Equity LP terminated its agreement to buy Williams Cos. after 18 months of negotiations, leaving Williams to carry on as a standalone company and Energy Transfer to seek other options for growth.
Energy Transfer provided written notice terminating the nearly $33 billion agreement, according to a statement Wednesday. That came after a Delaware judge ruled last week that it could back out of its bid to buy the rival pipeline giant after failing to get lawyers to sign off on a tax opinion. By the time Williams shareholders tried to salvage the merger by voting to approve the takeover Monday, investors had already assumed the deal was dead.
The proposed tie-up now stands as one of the largest deals undone by the plunge in oil prices that has sent shock waves through companies, industries and entire economies. Crude’s collapse dragged the market value of both companies down by more than a third, straining their relationship and throwing into question the economics of the deal. As oil sank lower than either expected, both companies accused each other of sabotaging the deal.
“At some point Energy Transfer is going to have to go back to the M&A markets to grow,” Bloomberg Intelligence analyst Michael Kay said by phone Wednesday. “They’re just too big to keep growing organically.”
Delaware Chancery Court Judge Sam Glasscock ruled June 24 that Energy Transfer may terminate the merger after its advisers said the deal didn’t free investors from tax liabilities. Williams remained steadfast, saying it would “enforce its rights” under the terms of its agreement if Energy Transfer attempts to terminate the pact, according to a statement after the decision.
Williams filed a notice of appeal, though it didn’t ask the Delaware Supreme Court for a quick hearing, meaning that such a step could take months -- if the court agrees to a hear the case at all.
“Williams does not believe ETE had a right to terminate the merger agreement,” the company said in a statement Wednesday. “Williams has concluded that it is in the best interests of its stockholders to seek, among other remedies, monetary damages from ETE.”
The termination allows each side to walk away without a breakup fee, and means Energy Transfer Equity can avoid “being overburdened with $10 billion in new debt,” Bloomberg Intelligence analysts Kay and Brandon Barnes wrote in research published Wednesday.
Before the deal, Williams was facing pressure from investors to simplify its corporate structure and lower its cost of capital. In the aftermath of the Energy Transfer fight, it may see a shakeup in its management ranks.
Energy Transfer made several offers before Williams’ board agreed to the purchase in September. Keith E. Bailey, who served as Williams’ chief executive officer from 1994 to 2002, suggested that those at Williams who were most in favor of the deal should resign.
“You need the board and the management team to be on the same page and moving in the same direction,” Bailey said in a phone interview on June 23.
Williams has already telegraphed one move. Earlier this month, it said it may have to cut its 64-cent quarterly dividend -- for the first time in at least a decade -- by a “material” amount. The shareholder payout may be cut by 75 percent in the third quarter, Timm Schneider, an analyst at Evercore ISI, said in a note to clients on Monday. Schneider also gave Williams a "buy" rating and a target price of $24 per share.
Williams may also revive a plan to buy out owners of its master limited partnership, Williams Partners LP, Kay said. That offer was scuttled by the Energy Transfer agreement.
Meanwhile, Energy Transfer Chief Executive Officer Kelcy Warren feared that pushing ahead with the deal would prompt analysts to downgrade the company and cause an “implosion,” according to court testimony from Jamie Welch, the company’s former chief financial officer.
Energy Transfer was up 3.9 percent $14.97 at 9:52 a.m. in New York. Williams fell 0.6 percent to $20.52.
“We like both,” Jefferies LLC analyst Christopher P. Sighinolfi said by phone Wednesday. “We would expect over time for both to appreciate. We’d advocate buying both securities but we recognize there’s a host of issues that will linger and persist following all the visible turmoil from the springtime.”