On Sept. 28, Energy Transfer Equity LP (NYSE: ETE) and The Williams Companies Inc. (NYSE: WMB) announced a business combination transaction valued at approximately $37.7 billion, including the assumption of debt and other liabilities. The announcement follows the termination of the previously agreed merger agreement between WMB and Williams Partners LP (WPZ). The business combination between ETE and WMB was approved by the boards of directors of both entities.
The deal ends a nine-month effort by Dallas billionaire Kelcy Warren that became public in June when Williams rejected a first offer as too low and then sought other suitors for an auction of the company.
Analysts at Houston investment bank Tudor Pickering Holt & Co. thought the transaction was favorable for both parties. “We like the deal as proposed three months ago and still do,” said TPH in a note to clients.
The merger between Energy Transfer and Williams will create the sixth-largest US energy company, according to one source. The two companies had a combined market value of approximately $60 billion as of Sept. 25.
The transaction ranks among the largest in the US midstream industry, which last year saw Houston-based Kinder Morgan Inc. consolidate its partnership assets into one company via transactions with an enterprise value of more than $40 billion. Kinder Morgan’s market value is currently about $65 billion and remains the largest midstream company in the United States by a narrow margin. Led by Houston billionaire Richard Kinder, Kinder Morgan paid $78 billion in mid-2014 to consolidate its interests in Kinder Morgan Energy Partners, Kinder Morgan Management, and El Paso Pipeline Partners.
Under the terms of the transaction, Energy Transfer Corp LP (ETC), an affiliate of ETE, will acquire Williams at an implied current price of $43.50 per Williams share. Williams’ stockholders will have the right to elect to receive as merger consideration either ETC common shares, which would be publicly traded on the NYSE under the symbol “ETC”, and/or cash.
Elections to receive ETC common shares and cash will be subject to proration. Cash elections will be prorated to the extent they exceed $6.05 billion in the aggregate and stock elections will be prorated to the extent the full $6.05 billion cash pool is not utilized. Williams stockholders electing to receive stock consideration will receive a fixed exchange ratio of 1.8716 ETC common shares for each share of WMB common stock, before giving effect to proration. If all Williams’ stockholders elect to receive all cash or all stock, then each share of Williams common stock would receive $8.00 in cash and 1.5274 ETC common shares. In addition, WMB stockholders will be entitled to a special one-time dividend of $0.10 per WMB share to be paid immediately prior to the closing of the transaction. The special one-time dividend is in addition to the regularly scheduled WMB dividends to be paid before closing.
Under the deal, Williams would keep its own name and headquarters as well as a significant presence in Tulsa, Oklahoma, where it is currently based. Williams has more than 30,000 miles of pipeline, and Energy Transfer has about 70,000 miles of pipeline.