The already complicated relationship between Energy Transfer Equity LP (NYSE: ETE) and Williams Cos. Inc. (NYSE: WMB) is headed to counseling—the legal kind.
The two companies, which are engaged in a nearly $38 billion merger, will now square off in the courts after Williams said April 6 that Energy Transfer and the company’s CEO, Kelcy Warren, violated terms with an equity sale made in March.
Energy Transfer Equity completed a private offering of $3.9 billion in series A convertible preferred units, according to March 8 filings with the Securities and Exchange Commission. The units were sold to certain unitholders who are “accredited investors” including Warren, who is the company’s largest shareholder.
Williams’ board said in a press release that Energy Transfer’s offering breached terms of the companies’ merger agreement. The company contends that the offering will direct distributions to Warren and other investors and away from Williams and Energy Transfer shareholders.
“Among other things, the offering provides select ETE investors with preferential treatment on ETE distributions,” the board of Tulsa, Okla.-based Williams said.
Williams’ suit against Energy Transfer, filed in a Delaware court, asks that the company’s offering be reversed. Williams also filed suit against Warren in Dallas County, Texas, for tortious or wrongful interference with the companies’ merger agreement, the release said.
Nevertheless, Williams’ board has not changed its position to recommend the merger. The company said it wants stockholders to receive the consideration “to which they are entitled” under the merger agreement.
The transaction, which has yet to be approved by Williams shareholders, is expected to close in the second quarter of 2016, the release said.
In September 2015, Williams agreed to be acquired by Energy Transfer Equity for about $37.7 billion, including the assumption of debt and other liabilities. In the deal, Williams will merge into a new company under Energy Transfer.
Williams said it looks forward to completing the transaction and delivering its benefits to its stockholders, according to the release.
Assuming the merger goes through, the new Energy Transfer Corp. will be a midstream behemoth that would rival Kinder Morgan Inc. (NYSE: KMI) in size. The combination will create the third largest energy franchise in North America and one of the five largest global energy companies, the companies said.
The merger has been a long journey for Energy Transfer, which in June 2015 made public its then six-month effort to court Williams with a $53.1 billion bid. Williams said at the time that the offer undervalued the company.
However, Williams ended up accepting a merger proposal for $15.4 billion less than the original offer. Still, the underlying value of the transaction remained close to the earlier bid relative to the decline in the two companies' market value.
The agreed-to $37.7 billion price implied $43.50 per Williams' share, a 4.6% premium over the company's $41.50 closing share price on Sept. 25, 2015.
As part of the transaction, Williams terminated a $13.8 billion deal to merge with its MLP, Williams Partners LP (NYSE: WPZ). Williams Partners will remain a publicly traded partnership with headquarters in Tulsa.
Emily Moser can be reached at emoser@hartenergy.com.
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Energy Transfer Partners’ Long Pursuit Of Williams Ends With $38 Billion Ring
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