Energy Transfer wins Williams Pipeline bid
NEW YORK Energy Transfer Equity LP won its bid to take over Williams Cos., agreeing to pay US$37.7 billion for control of pipelines and plants that handle almost a third of rising U.S. natural gas demand.
The deal is worth about US$10 billion less than Energy Transfer Equity’s initial offer in June as stock in both companies plunged more than 35 per cent. Williams investors will get US$43.50 a share in cash or stock of an affiliate of Energy Transfer Equity, according to a statement Monday. Williams fell to the lowest in more than 20 months.
“What Williams has done is provide a cash-exit strategy for its shareholders, but at a lower price,” than the all-stock offer in June, Skip Aylesworth, who manages US$1.5 billion in pipeline and utility funds from Boston for Hennessy Funds Trust, said in an interview Monday. Investors “thought they were going to see a higher number.”
Williams fell to US$37.26 after the deal was announced, the lowest since Dec. 2013.
The deal ends a nine-month effort by Dallas billionaire Kelcy Warren, Energy Transfer Equity chairman, that became public in June when Williams rejected Energy Transfer’s initial US$48 billion offer as too low, and then sought other suitors for an auction of the company.
The takeover comes as a record volume of natural gas flows out of the Marcellus shale formation centred in Pennsylvania, now the largest and most prolific U.S. gas field. The surge in output from the region has upended the nation’s gas markets, as well as the majority of the U.S. pipeline network that was previously designed to deliver gas from the Gulf Coast.
“Some traders and hedge funds can’t wait for the long-term gains and think the long time spent reaching agreement led to too high a price to leave them any more short-term profits,” Erik Gordon, a clinical assistant professor at the University of Michigan’s Ross School of Business, said Monday.
Williams investors would own a 52 per cent stake in Energy Transfer Equity after closing, the same interest offered in June, chief financial officer Jamie Welch said Monday in a call with analysts. The ratio is 1.8716 share of the corporate affiliate for each share of Williams. It reflects a two for one stock split by Energy Transfer in July, he said.
Williams’ crown jewel is Transco, the largest U.S. gas pipeline system. It connects the Marcellus to populous U.S. markets. Williams has contracts underwriting at least US$2.5 billion to enlarge Transco, according to the company’s May investor presentation. Its lines connect some Energy Transfer businesses.
“Williams adds scale, complimentary assets that enhance services to producers, synergies and significant potential commercial growth opportunities,” Elvira Scotto, an analyst for RBC Capital Markets, wrote in a June 22 note to clients.
The transaction ranks among the largest in the North American pipeline industry, which last year saw Kinder Morgan Inc. consolidate its partnership assets into one company through transactions with an enterprise value of more than US$40 billion, according to data compiled by Bloomberg.
Williams adds scale, complimentary assets that enhance services to producers, synergies and significant potential commercial growth opportunities.