Energy Transfer Equity-Williams Companies merger: A deal fraught with troubles
Deals beset with complications early on during negotiations rarely end with beneficial results. Merging companies that head to court to argue why each party violated their terms of a deal, however, is an entirely different story. Last September, Energy Transfer Equity, a major player in the energy industry, announced its intentions to buy its competitor the Williams Companies, in a deal valued at $37.7 billion. This deal would create the third-largest energy franchise on the continent and one of the top five in the entire world.
While the two companies said that the deal would benefit consumers and reduce market inefficiencies, ETE and Williams just recently began their two-day trial in Delaware that consolidates the many lawsuits the two organizations have filed against each other in relation to the deal, according to Bloomberg. Delaware Chancery Court Judge Sam Glasscock will provide his final ruling before the June 27 shareholder vote to approve or deny the deal, according to Reuters.
Why are the companies battling in court?
Basically, each company has publicly and legally stated that the other has breached the agreed-to terms of the deal. For ETE, some of these claims include that Williams has refused to cooperate with ETE's efforts to finance the merger, failed to use reasonable efforts to complete the merger and sued Kelcy Warren, the chairman of the board of directors of ETE's general partner. As a result, ETE wants Glasscock to strike down the original terms of the merger in regards to these serious allegations.
Meanwhile, Williams wants ETE to hold to its original offer, as proponents for the deal believe Williams would thrive as a junior affiliate of ETE, but wither as a stand-alone entity. Furthermore, ETE does not suffer significant losses should the deal fail, as outlined by the terms of the original agreement. However, Williams would have to pay the $1.5 billion deal breakup fee if it is the one to bring an end to the merger, according to Bloomberg.
"There's no way the original deal is going to fly and the Williams folks are going to want to get something out of this mess," Chad Ruback, a Dallas-based lawyer who has been tracking the deal, told Bloomberg. "There will be either a re-negotiation of the deal or a large-dollar settlement."
Why does ETE want this deal to fail?
Since the time of this deal's announcement, low oil and gas prices have severely lowered the value of many energy companies' stock. ETE's desire to build a large network of oil and gas pipelines in the country by partnering with Williams now seems defunct, as such a deal in this current economic situation could be disastrous. ETE worries that amassing significant merger debt during a period of market volatility could cripple its chances of thriving in energy organization.
Meanwhile, if the judge is to rule against ETE, Williams is likely to gain further leveraging power and a better settlement offer in the deal. Williams released a company press release on June 20 outlining all the reasons why shareholders should vote in favor of the deal. Some of the recommendations advocating a "for" vote include reasoning that the deal will enhance the scope of future M&A opportunities, benefit customers through their complementary geographical footprints, build financial strength, and create upside exposure and certainty of value.
Those following the deal closely expect Glasscock to come to a carefully deliberated conclusion shortly. This ruling will likely affect the outcome of the June 26 shareholder vote.