WMB Williams Companies Inc

By Alison Sider 

Williams Cos. has filed a new lawsuit against pipeline giant Energy Transfer Equity, seeking to force the company to proceed with their merger agreement.

Williams has accused its would-be buyer of trying to wriggle out of the deal. In a filing in the Delaware Court of Chancery announced late Friday, the company asked a judge to bar Energy Transfer from terminating the merger agreement over a tax issue that Energy Transfer has argued is critical, or if the deal isn't closed by the June 28 deadline.

"Williams alleges that ETE has breached the merger agreement through a pattern of delay and obstruction designed to allow ETE to avoid its contractual commitments," the company said in a statement late Friday.

Energy Transfer didn't respond to requests for comment.

Energy Transfer has suffered from a severe case of buyer's remorse since it agreed to buy Williams, a rival pipeline company, in a deal valued at $33 billion when it was announced last September.

The merger contract was written with unusually tight provisions on how Energy Transfer can get out of the agreement. Williams would owe Energy Transfer a $1.48 billion breakup fee if Williams walked away. Williams shareholders could still vote down the merger, but Williams's board is pushing to hold Energy Transfer to the terms of the deal.

In recent weeks, Energy Transfer has argued that it can't complete the acquisition -- at least not as it is currently structured -- because its lawyers can't guarantee that the deal will be a tax-free transaction for Williams shareholders. Obtaining a favorable opinion on the tax issue from Energy Transfer's lawyers is a requirement for the deal to close.

"We intend to honor all of our commitments under the merger agreement, but we can't close this deal," Energy Transfer Chairman Kelcy Warren said during a conference call earlier this month. "Absent a substantial restructuring of this transaction, which Energy Transfer has been very willing and actually desiring to do, absent that, we don't have a deal."

Williams has said it disagrees with the lawyers' assessment of the tax risks.

Relations between the two companies have soured in recent months. Oil prices continued to fall after the merger agreement was announced, and investors began to worry that the $6 billion cash portion of the deal would saddle Energy Transfer with too much debt during a protracted downturn in oil-and-gas markets.

Williams's new suit is the latest legal maneuver in the continuing saga. Last month, Williams sued in Delaware over the issuance of preferred convertible shares to certain Energy Transfer insiders, including Mr. Warren. With those special shares, company insiders agreed to give up a portion of their cash distribution in exchange for more equity in the company down the road.

Williams also sued Mr. Warren in Texas, arguing that he interfered with the deal by going forward with the share issuance.

Williams argued the convertible-share plan would protect Energy Transfer insiders from any future cuts to cash payouts at the expense of Williams shareholders. Energy Transfer has said the special shares will help it pay down debt and countersued Williams, arguing it had breached the merger agreement by blocking Energy Transfer from offering the special shares more broadly.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

May 14, 2016 14:00 ET (18:00 GMT)

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