Energy Transfer to Buy Williams Cos. After Yearlong Pursuit

28 Sep 2015 | Author: | No comments yet »

Energy Transfer to Buy Williams Cos. After Yearlong Pursuit.

HOUSTON — The Williams Cos. said Monday it will accept an offer from rival Energy Transfer, ending months of tortuous negotiation with a deal worth $32.9 billion.Investors are balking at Energy Transfer Equity’s (ETE -8.9%) just-announced merger with Williams Cos. (WMB -8.6%), as shares in the two oil and gas pipeline companies sell off sharply. The purchase is the second-largest energy deal announced this year, behind only Royal Dutch Shell’s $70 billion acquisition of natural gas producer BG Group in April, and it’s the largest combination announced since oil prices slid from near $60 per barrel highs earlier this year. WMB appears not to have needed to do much to sweeten its offer: “At first glance, it seems as if the bid matches ETE’s original offer made in June,” Raymond James analysts say – since both companies’ shares have fallen since the potential deal first became public, the headline deal number is now much lower than the $48B value announced in June.

While plunging oil and natural gas prices have not hit pipeline operators as hard as other energy companies, analysts say the group is facing pressure to merge; prices also have fallen for fuels such as ethane and propane, which has hurt companies like WMB, which processes natural gas. Natural-gas prices have remained low, the price of oil the companies also transport has tumbled, and the outlook for growth in the pipeline industry has dimmed. Despite the immediate negative reaction, ETE claims the merger will enable it to capture $2.4B or more in commercial and cost-saving synergies over the next few years. But in the end, Dallas-based Energy Transfer prevailed with a bid that values Williams shares at $43.50, a 4.6% premium to their closing price Friday. The exchange ratio in Monday’s deal is the same as the original offer, accounting for Energy Transfer’s 2-for-1 stock split in July, but Williams shareholders now have the option to receive stock or cash, up to $6.05 billion.

Dallas’ Energy Transfer operates on a larger scale, with about 71,000 miles of pipelines connecting wells and processing centers throughout Texas, the Gulf Coast and the Midwest. Williams offers Energy Transfer more access to the northeastern U.S., where connections are needed to bring surging output from the Marcellus Shale in Pennsylvania to New York and New England. Tulsa, Okla.-based Williams’s 10,000 mile Transco natural gas network is thought of as the company’s crown jewel and is a critical fuel link between Texas and the Northeast.

Williams Partners L.P., an asset-holding subsidiary of The Williams Companies Inc, will shift into the Energy Transfer family of companies but will keep its name and continue to trade separately. In July, a partnership controlled by Marathon Petroleum Corp., a refinery and pipeline company, said it would buy MarkWest Energy Partners LP for $15.8 billion. However, the Williams board didn’t close the door to a deal completely and invited further bidding when it hired investment bankers to determine the best path forward.

Many energy infrastructure companies are set up as partnerships that promise to distribute increasing amounts of cash to investors, which puts them under pressure to build new projects or to buy rivals to keep growing. These companies have some protection from low prices because they often have contracts in place that keep fees coming in even if prices for the commodities they handle fall. But a prolonged downturn could call into question the need for more infrastructure, and the prospect of slower production growth could mean fewer opportunities for companies to grow organically. As part of the deal, Williams is abandoning a plan it announced last May to buy its affiliated partnership, Williams Partners, in a $13.8 billion deal. That move was similar to a restructuring by Kinder Morgan Inc. last year, and would have helped unburden the company of hefty payments that sometimes weigh down partnerships.

SLB -4.33 % , the world’s largest oil-field service company, announced a deal to buy smaller rival Cameron International Corp. for $12.7 billion in cash and stock.

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