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Energy Transfer Equity makes an all-equity offer for Williams

The Williams Companies (ticker: WMB) rejected an all-equity transaction valued at $53.1 billion, including the assumption of debt and other liabilities, from Energy Transfer Equity (ticker: ETE), according to an ETE press release today. ETE made a series of offers for Williams, which WMB had not replied to prior to rejecting the deal on Monday, according to the release.

Under the terms of the proposal, Energy Transfer Equity would acquire all the outstanding common stock of Williams at an implied price of $64 per share, representing a 32.4% premium on the closing price for Williams’ shares as of June 19, 2015. The merger consideration would be in the form of common shares in an entity that would elect to be taxed as a C-corp (ETE Corp). The number of ETE Corp shares to be issued to Williams stockholders would be based on a fixed exchange ratio of 0.9358 ETE Corp shares for each Williams share. The deal was also contingent upon the termination of Williams’ pending acquisition of Williams Partners (ticker: WPZ), WMB said in its statement regarding its decision to reject the offer.

Even at the 32.4% premium price, Williams felt that the offer did not accurately reflect the value of the company. “The Williams Board carefully considered the unsolicited proposal and determined that it significantly undervalues Williams and would not deliver value commensurate with what Williams expect to achieve on a standalone basis and through growth initiatives, including the pending acquisition of Williams Partners,” it said in the statement.

Williams also announced that it has retained Barclays PLC and Lazard in order to explore its options, including a merger, sale of the company, or continuing on its current path.


Source: WMB

In its statement, ETE said it was disappointed with the response from Williams. “Generally, I have not been supportive of transactions that involve the issuance of ETE units given my belief that ETE units remain significantly undervalued,” said ETE Chairman Kelcy Warren. “However, I believe that a combination of Williams’ assets with ETE will create substantial value that would not be realized otherwise.”

Energy Transfer Equity owns approximately 71,000 miles of natural gas, natural gas liquids, refined products and crude oil pipelines. According to EnerCom’s MLP Weekly for the week ended June 19, 2015, ETE has a trailing twelve month total return of 31.1%, well above the group median of -11.4%. The company’s net debt/EBITDA ratio of 7.5x is higher than the group median of 4.9x.

Analyst Commentary

Darren Horowitz, Raymond James Equity Research, 06.22.2015
All in, we expect shares/units of the Williams family to trade up on the news, as this is a strong statement from management regarding its perception of the family's current market valuation (with additional upside from a more favorable strategic alternative still a possibility). From ETE's perspective, management has been very visible in the fact that the partnership has been considering transitioning into a C-Corp, in an effort to broaden overall institutional interest in the family, and we support the notion that ETE will likely be benefitted by the news, as well. Not only does the "up-C" structure of the deal maximize the tax advantage of the acquisition for ETE, but also we believe that both cost and commercial synergies could be substantial (for reference, expected cost synergies of the recent ~$18 billion consolidation of ETP and RGP were outlined to range between $160-225 million).

Global Hunter Securities comments on WMB spinoff, WPX, 06.19.2015
Spun off from WMB at the beginning of 2012, WPX is a legacy gas producer transitioning to a more balanced production mix. WPX has made meaningful progress to date through concentrated investment and a focus on costs. New management has set ambitious targets for oil production and margin growth and given WPX a strong balance sheet by streamlining the portfolio. We see WPX’s current valuation discount narrowing as the company’s transition drives improving capital efficiency and cash margins.  

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