Pipeline Mergers Trump Drilling M&A As Energy Transfer Offers $37.7B For Williams

28 Sep 2015 | Author: | No comments yet »

$38 billion merger: Pipeline giants strike deal.

Energy Transfer, a Dallas-based pipeline company, had been pursuing Williams for six months before Williams in June spurned its unsolicited offer, valued at $48 billion or $53.1 billion including debt and other liabilities.Dallas billionaire Kelcy Warren has closed the deal to acquire pipeline company Williams Co., ending a lengthy pursuit that initially drew opposition from management at the rival firm.New York: Energy Transfer Equity LP won its bid to take over Williams Cos., agreeing to pay $37.7 billion (Dh138.41 billion) for control of the company’s pipelines and plants that handle almost a third of rising US natural gas demand. The move is in the latest of a string of deals from Warren, who has proved himself an aggressive deal maker in recent years, acquiring Sunoco and Southern Union in 2012 and then Susser Holdings, which owns the Stripes gas station chain, last year.

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 US gasfield. MacInnis said that after evaluating the company’s alternatives, the board decided the deal with Energy Transfer was the best option for the company’s stakeholders. The dramatic fall in crude prices since last summer, the result of a surge in U.S. oil production and uncertainty in the global economy, has only sparked his interest. “You try to guess the bottom, and you’re always wrong.

The surge in output from the region has upended the nation’s gas markets, as well as the majority of the US pipeline network that was previously designed to deliver gas from the Gulf Coast. “It’s going to be good to control a lot of long-distance pipelines because the pricing is going to move around the country,” Skip Aylesworth, who helps manage about $6 billion for Novato, California-based Hennessy Funds, including shares in both companies, said in an interview last month. Shares of energy companies have been slammed amid a drop in energy prices, with Williams and Energy Transfer shares both declining more than 25% in the past three months. The downturn in prices has left stronger companies across the industry—including exploration and drilling companies—eyeing rivals as potential acquisition targets. But since there is little overlap between the two companies’ networks, analysts have predicted that federal regulators would probably approve a merger of the two. Under the terms of the deal announced this morning, Energy Transfer will pay $43.50 for each share of Williams, an almost $2 premium to the closing price Friday.

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. Under the deal, Williams holders would receive roughly $43.50 per share held or 1.8716 shares of ETE affiliate Energy Transfer Corp. per Williams share held. More critically, Energy Transfer is willing to put more than $6 billion in cash into the deal Warren’s interest in the Tulsa-based Williams first came into public view in June when management there fought back Warren’s initial all-stock offer for the company. 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 $40 billion, according to data compiled by Bloomberg. Williams said then that it would explore alternatives as part of a strategic review, effectively launching a bidding war in which ETE emerged the victor on Monday.

Williams, with more than 30,000 miles of pipeline, offers Energy Transfer the chance to expand its business moving natural gas around the country, along with the opportunity to move into the Western United States and Canada, where oil sands have become a large new source of crude. Williams’ stockholders will have the right to elect to receive as merger consideration either ETC common shares, which would be publicly traded on the NYSE under the symbol “ETC”, and / or cash… ETC will be treated as a corporation for U.S. federal income tax purposes, and holders of ETC common shares will therefore receive an IRS Form 1099, rather than a Schedule K-1, for federal income tax reporting. Williams has significant fuel-moving capabilities in the northeastern U.S., while most of Energy Transfer’s pipelines are located across the south and Midwest. Combining with Williams would “vault [Energy Transfer] into a league of its own in terms of midstream size,” a report by Bank of America Merrill Lynch this summer read.

Energy Transfer controls three other partnerships: pipeline owner Energy Transfer Partners LP, fuel distributor and retailer Sunoco LP, and Sunoco Logistics Partners LP, an owner of pipelines carrying crude oil and refined products.

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