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A Brief History of the Energy Transfer-Williams Non-Merger

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A $33 billion merger agreement between Energy Transfer Equity LP (ETE) and The Williams Cos. Inc. appears to have gone down in flames during the final week of June. Energy Transfer terminated the deal on June 29 after the company’s legal representatives at Latham & Watkins LLP were unable to declare that it would be tax-free.

The merger agreement was originally signed last year, with Energy Transfer agreeing to purchase Williams in a cash-and-stock transaction that would have made the combined company one of the world’s largest energy infrastructure operators. However, controversy has been swirling around the deal for months. Williams has accused Energy Transfer of trying to break the deal, and the two companies have sued each other.

The situation got dicey when a Delaware judge ruled June 24 that Energy Transfer could back out of the deal without penalty because the company’s lawyers couldn’t deliver a necessary opinion on the deal’s tax treatment.

However, the fight may not be over. Williams said it doesn’t believe Energy Transfer has the right to terminate the deal and may seek damages against the company. What follows is a timeline of the final week that resulted in the merger’s termination.

June 24:

Delaware Court Decision
The Delaware Court of Chancery issued an opinion finding that ETE is contractually entitled to terminate its merger agreement with Williams in the event that ETE’s counsel Latham & Watkins is unable to deliver a required tax opinion prior to the June 28 outside date in the merger agreement.

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The Chancery Court’s opinion stated: “Because I conclude that Latham, as of the time of trial, could not in good faith opine that tax authorities should treat the specific exchange in question as tax free under Section 721(a); and because Williams has failed to demonstrate that the Partnership has materially breached its contractual obligation to undertake commercially reasonable efforts to receive such an opinion from Latham, I find that the Partnership is contractually entitled to terminate the Merger Agreement, assuming Latham’s opinion does not change before the end of the merger period, June 28, 2016.”

Latham advised Energy Transfer that it is currently unable to deliver the opinion, and ETE does not believe that its legal counsel will be able to render the opinion prior to June 29, the date that ETE would be entitled to terminate the merger agreement in light of the opinion rendered by the Delaware Court of Chancery.

The Chancery Court’s ruling is subject to appeal.

Williams issued the following statement regarding the Delaware Court of Chancery’s ruling relating to the merger agreement between Williams and Energy Transfer:

“While we appreciate the Court’s consideration of this matter, Williams does not believe ETE has a right to terminate the Merger Agreement because ETE has breached the Merger Agreement by failing to cooperate and use necessary efforts to satisfy the conditions to closing, including delivery of Latham & Watkins LLP’s Section 721(a) tax opinion. Williams remains committed to closing the merger under the Merger Agreement entered into with ETE on September 28, 2015. If ETE attempts to terminate the Merger Agreement, Williams will take appropriate actions to enforce its rights under the Merger Agreement and deliver its benefits to Williams’ stockholders.

“The Williams Board continues to recommend that stockholders vote ‘FOR’ the merger agreement with ETE. The cash and stock transaction with ETE will provide Williams stockholders a significant premium, meaningful participation in the upside of combined company and value certainty through the cash component.”

The special meeting of stockholders was held Monday, June 27, at the Williams Resource Center Theater in Tulsa, Oklahoma. Williams’ stockholders of record as of the close of business on May 19, 2016 were entitled to vote at the meeting.

June 27:

Williams Stockholders Approve Merger
Williams stockholders voted to approve the merger agreement with ETE, and the transactions contemplated thereby, including the merger of Williams into Energy Transfer Corp. LP (ETC), an affiliate of ETE.

At the special meeting, more than 80 percent of votes cast (477,466,993 shares) were in favor of the merger, representing more than 63 percent of all outstanding shares of Williams common stock. In addition, 442,806,585 shares or more than 80 percent of votes cast approved on an advisory basis certain compensatory arrangements between Williams and its named executive officers relating to the merger, representing approximately 59 percent of all shares of Williams common stock.

At completion of the merger, each share of Williams common stock will receive $8 in cash and 1.5274 common shares representing limited partner interests in ETC, 1.87 ETC common shares or $43.50 in cash, subject to proration procedures set forth in the merger agreement.

Williams also filed papers commencing an appeal in the Delaware Supreme Court of the Delaware Court of Chancery’s June 24 ruling related to the merger agreement between Williams and ETE. While Williams appreciates the Court of Chancery’s consideration of this matter, Williams does not believe ETE has a right to terminate the merger because ETE has breached the agreement by failing to cooperate and use necessary efforts to satisfy the conditions to closing, including delivery of Latham & Watkins Section 721(a)
tax opinion.

“Williams remains ready, willing and able to close the merger under the merger agreement entered into with ETE on Sept. 28, 2015,” the company said. “If ETE terminates the Merger Agreement, Williams will take appropriate actions to enforce its rights under the merger agreement and deliver benefits to Williams’ stockholders.”

June 29:

ETE Terminates Merger
Energy Transfer announced that it has terminated its merger agreement with Williams, effective June 29.

As previously announced on Friday, June 24, the Delaware Court of Chancery issued an opinion finding that ETE is contractually entitled to terminate the merger agreement with Williams in the event ETE’s counsel Latham & Watkins were unable to deliver a required tax opinion prior to the June 28 outside date in the merger agreement. Latham advised ETE that it was unable to deliver the opinion as of the outside date. Consistent with its rights and obligations under the merger agreement, ETE subsequently provided written notice terminating the merger agreement due to failure of conditions under the merger agreement, including Latham’s inability to deliver the required tax opinion, as well as the other bases detailed in ETE’s filings in the Delaware lawsuit.

Williams has appealed the decision by the Delaware Court of Chancery to the Delaware Supreme Court.

Williams later confirmed that Energy Transfer provided notice that it was attempting to terminate the merger agreement based on an alleged failure to satisfy the closing condition requiring delivery of a Section 721(a) tax opinion from Latham & Watkins.
Williams issued the following statement:

“Williams does not believe ETE had a right to terminate the Merger Agreement because ETE breached the Merger Agreement by (among other reasons) failing to cooperate and use necessary efforts to satisfy the conditions to closing, including delivery of Latham & Watkins LLP’s Section 721(a) tax opinion. Accordingly, on June 27, 2016, Williams filed an appeal with the Delaware Supreme Court in connection with the Delaware Court of Chancery’s June 24, 2016 ruling relating to the Merger Agreement between Williams and ETE.

“Williams recognizes the practical fact that ETE has refused to close the merger. Williams has concluded that it is in the best interests of its stockholders to seek, among other remedies, monetary damages from ETE for its breaches. So, while taking appropriate actions to enforce its rights and deliver benefits of the Merger Agreement to its stockholders, Williams will renew its focus on connecting the best natural gas supplies to the best markets.

“Williams remains well-positioned to meet the rapidly growing demand for natural gas and experience significant fee-based growth. Williams’ focus on fee-based revenue has produced strong cash flow, and looking forward, Williams expects continued growth from its portfolio of large scale demand driven projects and a fully contracted natural gas transmission business coming on in the balance of 2016, 2017 and 2018.”

This article was compiled from press releases from Energy Transfer Equity and The Williams Cos.

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