Posted on 09/29/2015 5:19:24 AM PDT by thackney
The Williams Cos. said Monday it will accept an offer from rival Energy Transfer, ending months of tortuous negotiation with a deal worth $32.9 billion.
The purchase is the second-largest energy deal announced this year, behind only Royal Dutch Shell’s $70 billion acquisition of natural gas producer BG Group in April, and it’s the largest combination announced since oil prices slid from near $60 per barrel highs earlier this year. Including debt and other fees, Williams’ final price tag will climb to $37.7 billion.
The new company will be the third largest energy business in North America and the fifth largest globally, according to the announcement. Energy Transfer said last year it had more than 1,350 employees in Houston. Williams said earlier this year it employs 900 across the city, including at the company’s iconic office tower near West Loop 610.
Both Energy Transfer and Williams own expansive natural gas and liquids infrastructure across the United States. Dallas’ Energy Transfer operates on a larger scale, with about 71,000 miles of pipelines connecting wells and processing centers throughout Texas, the Gulf Coast and the Midwest.
Williams operates about 33,000 miles of pipelines, and has a strong presence in the gas-hungry Northeast that has made the company an attractive target for competitors looking to access that market.
Williams’ crown jewel, the Transco pipeline, stretches 10,200 miles from South Texas to New York City. Analysts expect that the artery would become even more valuable when linked to Energy Transfer’s existing network of Permian Basin and Eagle Ford Shale pipes.
“Energy Transfer makes sense,” said Peggy Connerty, a midstream analyst at investment firm Morningstar in an interview earlier this month. “We’ve always been positive on the deal.”
Energy Transfer and The Williams Cos. are structured as tax-advantaged master limited partnerships, each with a publicly traded parent company that controls one or more separate publicly traded partnerships.
The merger will fold Williams’ parent company into newly formed Energy Transfer Corp., a corporation that will be controlled by Energy Transfer parent company Energy Transfer Equity but trade separately under the symbol ETC. Williams Partners L.P., an asset-holding subsidiary of The Williams Companies Inc, will shift into the Energy Transfer family of companies but will keep its name and continue to trade separately.
The Williams Companies Inc. shareholders will be able to receive $43.50 per share in cash, stock or a combination of stock and cash.
Arriving at the deal wasn’t simple.
Energy Transfer kicked off negotiations in May when it made a private, all-stock offer valued at about $48 billion to Williams’ board. Energy Transfer offered about $64 in its own equity for each Williams share at the time, at the time a 32 percent premium.
Williams publicly rebuked that bid in June, saying the offer undervalued its company. However, the Williams board didn’t close the door to a deal completely and invited further bidding when it hired investment bankers to determine the best path forward.
At one point, Energy Transfer appeared to be willing to take its bid hostile.
Other major midstream companies were reported to be considering bids for Williams as well. Given the size of Williams, only a handful of the largest midstream companies would be capable of pulling off the deal.
The pool was limited further by regulatory concerns. One potential suitor, Houston-based pipeline giant Kinder Morgan, has overlapping infrastructure that might have raised antitrust concerns.
While negotiations proceeded, falling crude prices began hammering the stock prices in the midstream sector. Shares of Williams Cos. have fallen about 19 percent since May, and Energy Transfer Equity’s units have fallen by about 30 percent.
Shares of Williams Cos. fell $5.04 or 12.1 percent to $36.56 and Energy Transfer Equity LP lost $2.95 to $20.29.
There will probably be a lot more consolidation coming in this ugly environment.
Energy Transfer had already acquired Regency Energy Partners, no small fry either, and Regency in turn had previously acquired Penn Virginia and several other companies.
Long term thinking is all one can do in this environment.
The layoffs are about to get pretty bloody. Hope you keep your own job.
Thanks for the concern. My client is a competitor of Energy Transfer. I’m working midstream Natural Gas Liquids these days. Nothing is ever for sure, but we are staying busy. Lots of expansions going on to feed those new petrochem plants coming on line. We feed those new ethane crackers, among others.
Just curious. If you’re familiar with DCP, do they seem ripe for being bought? Also, I’d like your thoughts on midstream compression. Do you see a trend toward rich burn or lean burn packages given current EPA rules?
Sorry, no help here. I don’t know the financials of DCP Midstream. No help from me on rich versus lean burn either.
My background is electrical but I do a lot of project type engineering for construction of facilities, construction support, troubleshooting, etc.
Thanks for the reply!
Lonestar is building a new NGL line thru my property originating in Permian to GC.
I will not hold them up one bit.
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