Williams Cos. Inc. (WMB)

[eastunder]

Analyzing the ETE-WMB Merger: Deal or No Deal?

Part 2

http://marketrealist.com/2016/04/analyzing-ete-wmb-merger-deal-no-deal/

Uncertainties surrounding the merger

The Energy Transfer Equity (ETE)-Williams Companies (WMB) merger has been surrounded by uncertainties since its announcement in September of last year. Below are the series of events that raised uncertainty about the pending merger and increased the volatility in both of the stocks.

The fall in energy prices raised questions about the timing of the deal.

Energy Transfer Equity’s replacement of its CFO, Jamie Welch, the main architect behind the deal, raised concerns about the prospects of the deal. Later, Welch reportedly called Williams Companies’ shareholders and urged them to vote against the deal in its current form.

There’s speculation in the Market that Energy Transfer Equity wants to pull out of the deal.

Energy Transfer Equity lowered the expected merger synergies.
Williams Companies filed a litigation against Energy Transfer Equity’s private offering.


Merger synergies

In a Form S-4 filed with the U.S. Securities and Exchange Commission on March 23, 2016, Energy Transfer Equity decided to reduce the expected merger synergies to $170 million per year by 2020. This is significantly less than the $2 billion per year merger synergies estimated at the time of the merger announcement.


Apart from reduced synergies, Energy Transfer Equity also mentioned in the filing that the additional $6 billion debt for financing the merger could “adversely affect ETE’s credit ratings.”

Another important change that Energy Transfer Equity made in the filing was related to its future presence in Tulsa. When the deal was announced in September 2015, Energy Transfer Equity said that it would maintain a “meaningful presence” in Tulsa. However, according to the latest S-4 filing, Williams Companies’ presence in Tulsa “will need to be significantly reduced” “or potentially eliminated.” Williams Companies is an important company in Tulsa. It has a huge workforce and influence there. The above changes are seen as efforts by Energy Transfer Equity to make the deal look as unattractive as possible.

Analysts’ targets

On a broader level, ~66.7% of the analysts rate Energy Transfer Equity a “buy” and the remaining ~33.3% rate it a “hold.” The median target price of $15 for Energy Transfer Equity implies an ~116.1% price return in the next 12 months from its April 6, 2016, closing price of $6.94. Williams Companies has a “hold” rating from 54.6% of the analysts. Energy Transfer Equity’s MLP subsidiary, Energy Transfer Partners (ETP), has a “buy” rating from 71.4% of the analysts while 58.3% of the analysts rated Williams Partners (WPZ) a “hold.” Energy Transfer Partners forms 0.12% of the SuperDividend U.S. ETF (DIV).