Williams, Energy Transfer Merger Leaves Shareholders Unimpressed

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Back in June, the Williams Companies Inc. (NYSE: WMB) turned down a merger offer from Energy Transfer Equity L.P. (NYSE: ETE) worth a total of about $53 billion, including Williams debt. On Monday morning, the companies announced a business combination in a transaction valued at about $37.7 billion in cash and stock, including debt.

Since a two-for-one unit split in late July, Energy Transfer Equity shares have posted a drop of around 19%, while Williams shares are down about 7.5%. The deal announced Monday is based on an implied current price for Williams of $43.50 per share, compared with an implied price per share of $64 back in June. The June offer was an all-stock transaction.

Under the terms of the new agreement, Williams shareholders can elect to receive common shares in Energy Transfer Corp. L.P., an affiliate of Energy Transfer Equity, which will trade on the New York Stock Exchange under the ticker symbol ETC, or cash or a combination of stock and cash:

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.

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Williams shareholders also will receive a one-time special dividend of $0.10 per share to be paid immediately before the transaction closes. For tax purposes Energy Transfer Corp. will be treated as a corporation, not a master limited partnership.

The proposed acquisition of Williams Partners L.P. (NYSE: WPZ) by Williams Companies is cancelled, and stakeholders in Energy Transfer Equity will own a stake in “three large investment grade MLPs”: Energy Transfer Partners L.P. (NYSE: ETP), Sunoco Logistics Partners L.P. (NYSE: SXL) and Williams Partners. The transaction is expected to be tax-free to existing Williams shareholders, and the deal is expected to close in the first half of 2016.

Energy Transfer Equity expects that the anticipated EBITDA from commercial synergies associated with the merger will exceed $2 billion per year by 2020 (or more than 20% of the estimated current pro forma EBITDA for the combined company) and will require overall incremental capital investment of more than $5 billion to achieve.

Williams shareholders are not so sanguine. Shares traded down as much as 5.5% in the premarket session and fell more than 9% to a new 52-week low of $37.40 in early trading. The 52-week high is $61.38.

Energy Transfer Equity common units fell more than 10% to a new 52-week low of $20.86 in early trading. The 52-week high is $35.44.

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