FTC Gives Williams-ETE Merger Green Light, But Hurdles Remain
By Amey Stone
The U.S. Federal Trade Commission gave approval, with conditions, for the merger of Williams Cos. (WMB) and Energy Transfer Equity (ETE) to proceed.
After the merger closes — which seems more theoretical than likely at this point — the two companies agreed to sell some assets, including a natural gas pipeline in Florida, to preserve competition.
The FTC was never the most serious hurdle to the merger closing. There are now lawsuits between the two companies as Williams accuses ETE of trying to scuttle the deal.
The companies will be back in court to fight over those issues starting June 20. Plus, Williams shareholders still need to approve the transaction in a vote scheduled for June 27. On Wednesday, Williams told shareholders that it may have to cut its dividend if deal doesn’t go through.
Phil Adams of Gimme Credit notes this was “obviously intended.” to get shareholders vote for the merger. However, he thinks Williams would have to cut its payout if the deal doesn’t happen. He wrote Thursday:
We’re inclined to think this is just the natural result of the limits of the C-corp/MLP structure. Williams Partners (WPZ) needs its cash flow to finance its growth project slate — however much trimmed by recent market weakness. Since WMB is reliant upon distributions from WPZ to service its debt and dividends, retention by WPZ of greater amounts of DCF means less cash for WMB to distribute. And, while we don’t think it will happen, if the Delaware Chancery Court rules in favor of ETE and awards the $1.48 billion termination fee, WMB will need to divert cash from dividends to debt service.
Energy Transfer fell 4% to $13.53 on Thursday, while Williams’ stock rose 10 cents to $23.28.
Here’s how Energy Transfer sums up the legal issues in its press release Thursday:
Completion of the proposed acquisition remains subject to the approval of WMB stockholders and other closing conditions, including the receipt by Energy Transfer Corp. LP (“ETC”) and Williams of a tax opinion from Latham & Watkins LLP (“Latham”) that the contribution of Williams’ assets by ETC to ETE should qualify as an exchange to which Section 721(a) of the Internal Revenue Code applies. Latham has advised ETE that it would not be able to deliver this tax opinion were the opinion requested as of the date of the proxy statement/prospectus mailed to Williams stockholders. ETE believes that there is a substantial risk that the closing condition relating to this tax opinion will not be met, and that it is unlikely that ETC would waive the closing condition. Williams believes that the contribution should qualify as an exchange to which Section 721(a) of the Internal Revenue Code applies, and would be willing to waive the condition to closing that Williams receive this tax opinion. Williams has filed a lawsuit against ETE in the Delaware Court of Chancery seeking, among other remedies, a declaratory judgment and injunction preventing ETE from terminating or otherwise avoiding its obligations under the merger agreement due to any failure of Latham to deliver the 721 tax opinion to ETC and Williams. ETE has filed its affirmative defenses and counterclaim and seeks, among other things, a declaratory judgment that, in the event Latham fails to deliver the 721 tax opinion prior to the outside date of June 28, 2016 set forth in the merger agreement, ETE will be entitled to terminate the merger agreement without liability due to the failure of a closing condition. The parties have agreed to expedited proceedings, with a trial scheduled to be held June 20 and June 21, 2016. Williams’ stockholders are encouraged to read the proxy statement/prospectus in its entirety, including the section entitled “Recent Developments,” for additional information regarding the foregoing