By Alison Sider
Low oil-and-gas prices are poised to shake up yet another part
of the nation's energy economy, spurring a merger battle among
companies that own the key pipelines that move fuels around the
country.
Williams Cos., a large natural-gas pipeline operator, said it
hired bankers and lawyers to help it review strategic alternatives,
including a sale, after rejecting a roughly $48 billion unsolicited
takeover that would have been the largest energy deal in the U.S.
this year.
Shares in the Tulsa, Okla., company soared to an all-time high
of $60.86, up 26%, giving the more than 100-year-old company a
market valuation of $45.58 billion. Shares of its would-be buyer
fell nearly 5% to $65.06.
Cheap energy has stronger companies across the
industry--including exploration and drilling companies--eyeing
weaker rivals. But deals have been few as buyout candidates hold
out for richer offers. Dallas-based pipeline company Energy
Transfer Equity LP. said it has been pursuing Williams for six
months.
And it isn't giving up, saying the proposed all-stock deal would
be "the right merger at the right time." Other pipeline giants also
may enter the Williams bidding, said analysts.
Other companies that run major pipelines may also be merger
candidates, analysts say, including Oneok Inc., another Tulsa
company that owns a skein of natural-gas lines and is building a
big new one to Mexico. Regional specialists may also be acquisition
targets, according to Credit Suisse, which named Targa Resources
Corp., a large pipeline operator in West Texas. Oneok declined to
comment. Targa didn't respond to requests for comment.
Crucial to the U.S. energy industry, pipelines are generally
considered the safe and boring end of the business; their operators
make money charging fees to move oil, natural gas and other fuels
around the country. Though there are several massive operators,
including Kinder Morgan Inc. of Houston and TransCanada Corp. of
Calgary, the business remains fragmented.
Pipeline operators have been less affected by low oil and gas
prices than the companies that explore and drill for energy. But
building pipelines has become difficult in many parts of the U.S.,
in part because of the kind of political pushback that has stalled
the Keystone oil pipeline from Canada.
Complicating the situation has been the decision of many
pipeline companies, including both Energy Transfer and Williams, to
embrace a partnership structure and promise to distribute
increasing cash payments to investors. That puts added pressure on
them to buy assets or rivals as a way to grow.
Williams, which has roots going back to 1908, owns one of the
most critical fuel links from Texas to New York and New Jersey, the
10,000-mile Transco natural-gas network. The company also is
building a line that will move natural gas from the Marcellus Shale
in Pennsylvania to New York and New England.
Though little known outside of the energy patch, Energy Transfer
has become one of top oil and gas transportation companies in the
U.S. under the guidance of a trained engineer and music producer
named Kelcy Warren. He started Energy Transfer in 1995 with less
than 200 miles of natural gas pipelines in Texas; today the company
controls an intricate network of 70,000 miles of oil, gas and fuel
lines.
Geographically, a deal with Williams would give Energy Transfer
an expanded footprint. 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.
Since there is little overlap between their networks, Bank of
America analysts said the two companies could combine without
having to do much to placate antitrust regulators.
Williams and Energy Transfer already have a contentious history.
In 2011, Energy Transfer agreed to buy pipeline operator Southern
Union Co. for $4.2 billion when Williams swooped in and offered
$4.9 billion. Ultimately Energy Transfer paid $5.7 billion to win
the deal.
The recent plunge in oil and other fuel prices has been akin to
blood in the water for Mr. Warren, who told investors last February
that he had a big appetite for energy deals this year.
"This is going to sound odd to you, almost sadistic, but I was
disappointed to see a rebound in crude prices," he said earlier
this year on a conference call with analysts and shareholders as
U.S. oil prices were rising from $50 to $60 a barrel. "I was
excited to see who might be more vulnerable if we saw this market
continue a downward trend and stay there a bit longer."
Behind the scenes, Mr. Warren was already pursuing Williams,
which has had financial problems. The company, which purchased the
Transco pipeline in 1995, was struggling under $15 billion in debt
in 2002 when it was aided by a $2 billion investment from its banks
and Warren Buffett's Berkshire Hathaway Inc.
More recently, Williams capitulated to two activist hedge funds,
Corvex Management LP and Soroban Capital Partners LLC, last year
giving them seats on the board. At the time, the funds said
financial missteps had hamstrung Williams, and encouraged the
company to consider a sale. On Monday the funds declined to
comment.
A deal would end Williams's plan to buy its subsidiary Williams
Partners for $13.8 billion. While at least one person involved in
that transaction said there had been no discussion of it as a
defensive measure, that deal prompted Energy Transfer to offer the
board $64 a share in stock on the condition that it jettison the
planned purchase.
Darren Horowitz, a Raymond James analyst, agreed with Williams
that the offer was too low. "I don't think that this offer truly
reflects the long term intrinsic value of Williams," he said.
But few expect Energy Transfer to give up. Ethan Bellamy, an
analyst with Robert W. Baird & Co., said Mr. Warren has been
pushing to build the company on a grand scale: "His vision is to
win and make money, make no mistake about that."
Erin Ailworth contributed to this article.
Write to Alison Sider at alison.sider@wsj.com and Dana Cimilluca
at dana.cimilluca@wsj.com
Access Investor Kit for Energy Transfer Equity LP
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US29273V1008
Subscribe to WSJ: http://online.wsj.com?mod=djnwires