By Alison Sider
Energy Transfer Equity LP agreed to acquire Williams Cos. in a
$32.6 billion deal that will create a massive U.S. network of
natural-gas pipelines.
In June, Williams had rejected a $48 billion offer from Energy
Transfer. But since then shares of energy companies have been
beaten down. 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.
Both companies' shares have fallen sharply since Energy
Transfer's original all-stock offer became public in June, so even
though Monday's offer is similar in exchange ratio, the total price
tag is about $15 billion lower.
Williams had hired advisers to run an auction that drew other
bidders, according to people familiar with the matter. 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.
One difference: Williams shareholders have the option to receive
part of the payment in cash--up to $6.05 billion.
Williams shares closed 12% lower at $36.57 on Monday, while
shares of Energy Transfer fell 13% to $20.29.
The firms will have a combined network of more than 100,000
miles of oil and gas pipelines crisscrossing the continent.
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 regarded as the company's crown jewel and is a critical
fuel link between Texas and the Northeast.
The price of a barrel of oil was hovering at about $60 a barrel
in June, but has since fallen to about $45; natural-gas prices have
dropped to about $2.70 from over $3. Companies that drill for oil
and gas have been cutting back, leading to declines in production
as well as widespread layoffs at oil-field services companies.
While plunging oil and natural gas prices haven't hit pipeline
operators as hard as other energy companies, analysts say the part
of the industry that builds and operates pipelines, natural-gas
processing facilities and storage terminals is facing pressure to
merge. Prices have also fallen for fuels like ethane and propane,
which has hurt companies like Williams, which processes natural
gas.
"The deterioration of oil field economics lately has accelerated
the need for consolidation," said Ethan Bellamy, an analyst at
Robert W. Baird, in an interview earlier this month.
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.
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.
Williams Partners LP will retain its name and partnership
structure, and will also receive a $428 million breakup fee for the
termination of the agreement with its parent.
Williams and Energy Transfer have butted heads in previous
deals. 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.
Williams Partners will join three other publicly traded
partnerships that Energy Transfer Equity controls: Energy Transfer
Partners LP, Sunoco LP and Sunoco Logistics Partners LP.
Energy Transfer Chief Executive Kelcy Warren, who founded the
company in 1995, has made no secret of his appetite for more deals.
An engineer by training, he has built Energy Transfer into one of
the top oil and gas transportation companies by acquiring companies
including Sunoco Inc. and Southern Union.
Energy Transfer hired no fewer than ten banks to advise it on
its pursuit of Williams--with the aim of preventing rival parties
from hiring the banks, according to people familiar with the
matter. Goldman Sachs Group Inc., Citigroup Inc., Bank of America
Corp., Deutsche Bank AG, UBS Group AG, Credit Suisse Group AG,
Morgan Stanley, J.P. Morgan Chase & Co., RBC Capital Markets
LLC and former Barclays PLC banker Hugh "Skip" McGee's new
boutique, Intrepid Partners, were hired, the people said.
Barclays and Lazard Ltd. are advising Williams on the deal.
Some $337 billion worth of energy deals have been struck so far
this year, according to data provider Dealogic, already topping the
record set in 2012. Last month, Schlumberger Ltd., 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.
Dana Mattioli contributed to this article.
Write to Alison Sider at alison.sider@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 28, 2015 19:22 ET (23:22 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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