Reckoning near for $38bn merger of Energy Transfer and Williams

August 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The merger of Energy Transfer Equity and Williams, initially announced in September 2015 and approved in early June this year, is in a state of limbo following two days of sparring between the two organisations in Delaware’s Court of Chancery. The two companies have accused one another of breaching their merger agreements and have thus been entangled in a bitter fight over the future of the merger.

The hearing was called in order to consolidate a number of lawsuits which the two firms filed against each another in relation to the $20bn merger, which has been in doubt for some time. Initially, Williams accused Energy Transfer of actively trying to scupper the deal; as a result, the two companies sued each other.

The deal would have seen Dallas-based Energy Transfer acquire Williams, which is based in Tulsa, Oklahoma, in a transaction giving Williams shareholders Energy Transfer stock, $6bn in cash and a special dividend. At one point, the deal was valued at around $32.9bn, but it began to unravel as oil prices continued to plummet. The cash element in particular caused Energy Transfer to reconsider.

On 9 June, after months of rumour, the merger was approved with conditions by the US Federal Trade Commission. The approval of the Commission was expected to be the final regulatory hurdle for the transaction to be completed, in a long and complicated merger process.

On 27 June, Williams Companies shareholders voted to approve the deal which would see the company become an affiliate of Energy Transfer. At the Special Meeting, 477,466,993 shares, or more than 80 percent of votes cast, were in support of the merger. In total these votes represented more than 63 percent of all outstanding shares of Williams’ common stock. More than 80 percent of votes cast also approved on an advisory basis certain compensatory arrangements between Williams and its named executive officers relating to the merger.

The shareholder vote came just days after the Supreme Court of Delaware announced that Energy Transfer Equity was no longer bound by its agreement to acquire Williams. The court concluded that Energy Transfer Equity had not breached the merger agreement when, in March, it reported a tax problem that would prevent the deal from closing on the scheduled date. According to the ruling, Energy Transfer is entitled to terminate the merger agreement if its tax adviser, Latham & Watkins LLP, is unable to render the required tax opinion before the end of the merger period on 28 June 2016. After the merger period had passed, either party was entitled to terminate the deal without any payment of termination fees. Williams argued that Energy Transfer was using the tax opinion as a ruse to miss the 28 June merger deadline and was deliberately trying to sabotage the deal.

Despite the Court’s decision, William’s remains undeterred. The company is still pursuing the transaction. “Williams does not believe ETE has a right to terminate the Merger Agreement because ETE has breached the Merger Agreement by failing to cooperate and use necessary efforts to satisfy the conditions to closing, including delivery of Latham & Watkins LLP’s Section 721(a) tax opinion. Williams remains ready, willing and able to close the merger under the Merger Agreement entered into with ETE on 28 September 2015”, said Williams in a statement announcing the vote decision. Williams has subsequently lodged an appeal against the Court’s verdict.

Richard Summerfield