Following the unsolicited proposal from Energy Transfer Equity, LP to acquire The Williams Companies Inc., the Williams board is working with outside financial and legal advisors to explore strategic alternatives.
Those alternatives, according to a June 21 release from the company, include among other things, a merger, a sale of Williams or continuing to pursue the company’s existing operating and growth plan. Williams has retained Barclays and Lazard to assist in its review of strategic alternatives.
Though un-named in the June 21 release, Energy Transfer Equity announced June 22 that it was the company that proposed the all-equity transaction valued at $53.1 billion, including the assumption of debt and other liabilities. The transaction amounts to a $64 per share.
According to Williams, with the assistance of its advisors, the board considered the proposal and determined that it significantly undervalues Williams and would not deliver value matching what Williams expects to achieve on a standalone basis and through other growth initiatives, including the pending acquisition of Williams Partners L.P.
On May 13, Williams and Williams Partners signed a definitive agreement under which Williams will acquire all of the public outstanding common units of Williams Partners in an all stock-for-unit transaction at a 1.115 ratio of Williams common shares per unit of Williams Partners. During its strategic review process, Williams will continue to work towards the completion of this transaction.
The initial Energy Transfer Equity acquisition offer was made in letter dated May 19, to Alan Armstrong, the CEO of Williams, followed by a letter dated June 11, to the Williams chairman of the board and most recently confirmed its offer in a letter dated June 18 sent to the Williams board of directors.
“Our board and management team remain committed to acting in the best interests of shareholders, and in light of the unsolicited proposal, our Board believes it is in the best interest of shareholders to conduct a thorough evaluation of strategic alternatives,” Armstrong, said in the June 21 release. “Williams’ premier infrastructure connects the best natural gas supplies to the best markets, and our strategy has provided substantial shareholder value allowing us to deliver a compound annual dividend growth rate of approximately 30 percent since we embarked on our strategy in 2012. In addition, we expect the growth of our business and the benefits from the WPZ [Williams Partners] transaction to enable 10-15 percent dividend growth through 2020. We are confident in our strategic plan and the significant value that will be created through the acquisition of WPZ and our large portfolio of growth projects. At the same time, we are open minded and committed to ensuring that Williams is maximizing value for shareholders.”
Under its merger proposal, Energy Transfer Equity would acquire all of the outstanding common stock of Williams at an implied price of $64 per Williams share, which represents a 32.4 percent premium to the Williams common share closing price as of June 19. The merger consideration would be in the form of common shares in an entity that would elect to be taxed as a C-corp (ETE Corp), which would be publicly traded on the NYSE under the symbol “ETC.”
According to Energy Transfer Equity, the company made multiple attempts over an almost six-month period to engage in meaningful, friendly dialogue with the senior management of Williams regarding a proposed merger. As a result of the Williams and Williams Partner merger announcement, Energy Transfer Equity felt compelled to send its written offer to Williams in an effort to bring Energy Transfer Equity’s interest to the attention of the Williams board. The letter also outlines what Energy Transfer Equity believes is a more compelling transaction than the proposed merger between Williams and Williams Partners.
“Generally, I have not been supportive of transactions that involve the issuance of ETE [Energy Transfer Equity] units given my belief that ETE units remain significantly undervalued. However, I believe that a combination of Williams’ assets with ETE will create substantial value that would not be realized otherwise,” said Energy Transfer Equity’s Chairman Kelcy Warren. “Therefore, I am a strong proponent of this transformative combination and support the issuance of a significant amount of ETE securities to complete the transaction. I am truly excited at the prospect of bringing together these two businesses under a common platform and creating additional value for every stakeholder.”
Although Energy Transfer Equity intends to pursue its proposal, there can be no assurance that any transaction with Williams will be consummated. Wachtell, Lipton, Rosen & Katz and Latham & Watkins are acting as legal counsel.