Pipeline giant The Williams Companies on Sunday rejected a $64 a share all-stock takeover offer from competitor Energy Transfer. The move comes as Williams works to reconfigure its operations amid pressure from shareholders, and during a consolidation wave among pipeline operators in North America.
Energy Transfer, chaired by billionaire Kelcy Warren, said on Sunday it made a stock-for-stock bid for Williams valued at $53.1 billion when including debt. The deal, priced at a 32% premium to Williams’ Friday closing stock price, would transform the pipeline sector and create a powerhouse to rival Kinder Morgan KMI +0.28%. It would also convert the combined company into a C-corporation, a move that Kinder Morgan made in late 2014 and that helped it weather an end-of-year rout in oil prices.
After roughly six months of attempts to engage with Williams, Energy Transfer said it was unable to start a friendly dialogue about a merger, forcing it to make an unsolicited bid. Energy Transfer said it does not foresee any regulatory hurdles to its merger bid, however, the Dallas-based company said its offer is contingent on Williams cancelling a May 13 acquisition of its MLP interest Williams Partners.
“I believe that a combination of Williams’ assets with ETE will create substantial value that would not be realized otherwise,” Energy Transfer chairman Warren said in a statement. “I am truly excited at the prospect of bringing together these two businesses under a common platform and creating additional value for every stakeholder,” Warren added, while characterizing the bid as an exception to his general aversion for stock-heavy acquisitions.
Warren further said a prospective deal would be immediately accretive to Energy Transfer’s distributable cash flow, and a point of diversification and improved creditworthiness fort the company. Williams shareholders, Warren said, would immediately see higher dividend payments and the combined company would have the flexibility to grow distributions at a fast clip.
In response, Williams said Energy Transfer’s bid “significantly undervalues” the company and doesn’t deliver the same value as its pending acquisition of Williams Partners and standalone growth prospects.
“Our Board and management team remain committed to acting in the best interests of shareholders, and in light of the unsolicited proposal, our Board believes it is in the best interest of shareholders to conduct a thorough evaluation of strategic alternatives,” Alan Armstrong, CEO of Williams said in a statement.
The company is now undergoing a strategic review, helped by advisors Barclays and Lazard. That review may yield “a merger, a sale of Williams or continuing to pursue the Company’s existing operating and growth plan,” Williams said.
Williams shares were rising over 25% in early trading Monday, while Energy Transfer shares were falling by a little over 2%. Williams Partners shares were falling by nearly 8%.
A prospective mega-merger between Energy Transfer and Williams would continue a trend of consolidation in the pipeline sector, mostly aimed at undoing tax-advantaged MLP structures that were the lifeblood of the industry over the past two decades.
In January, MLP Energy Transfer Partners announced a $18 billion consolidation of its MLP interest Regency Energy Partners, a deal that would simplify the combined company’s financial profile and lower unwieldy general partner payments to Energy Transfer Equity. Williams then made a similar move in announcing a consolidation of MLP interest Williams Partners this May.
Both moves came after MLP pioneer Kinder Morgan, led by pipeline billionaire Richard Kinder, paid $78 billion in mid-2014 to consolidate its interests in Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners.
When moved into a c-corporation status from complicated GP/LP relationships between general partners and MLP’s, pipeline operators say their shares will benefit from improved liquidity, smaller contractual payments among related entities and simplified corporate structures that could allow for further M&A, either in the midstream sector, or possibly in the battered oil and gas exploration industry.
By Antoine Gara