Why Goldman Sachs Sees Much More Upside in Williams Than Energy Transfer

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When the target company in a $38 billion acquisition deal gets left at the altar, chances are pretty good that the company’s share price will improve a little. That happened with Williams Companies Inc. (NYSE: WMB) on June 29 when Energy Transfer Equity L.P. (NYSE: ETE) withdrew its offer.

ETE had proposed a tax-free transaction as a condition of the deal, but when the tax-free status was questioned, the company went to Delaware’s chancery court seeking to have the deal terminated. The court agreed and that was the end of that.

Or maybe not. Williams shareholders had already voted in favor of the merger, and the company had already set in motion an appeal. Following the termination, six Williams directors resigned after failing to boot CEO Alan Armstrong. Williams will also be seeking damages of as much as $10 billion from ETE.

Perhaps that’s what caused analysts at Goldman Sachs to initiate coverage on Williams with a Buy rating and a price target of $25. According to a report at Benzinga, Goldman based its rating on Williams’ strong position in the country’s natural gas infrastructure, the strength of growth projects at its Williams Partners L.P. (NYSE: WPZ) subsidiary, and modest valuation compared with midstream competitors operating as C-corporations instead of master limited partnerships (MLPs).

Goldman priced in the effect of a likely 50% dividend cut and argued that a share price drop after the cut is announced is, in fact, a buying opportunity.

Goldman also initiated coverage of ETE with a Neutral rating and a price target of $17. That is less bullish than last week’s Buy rating and $20 price target from Deutsche Bank.

Williams shares traded down 0.7% in the early afternoon Wednesday, at $21.75 in a 52-week range of $10.22 to $58.49. The consensus price target on the stock is $21.78.

ETE shares traded down about 0.6% to $15.95, in a 52-week range of $4.00 to $32.87. The consensus price target is $15.96.