Williams, ETE clash over takeover financing

NEW YORK (Reuters) - U.S. pipeline companies Williams Cos Inc WMB.N and Energy Transfer Equity LP (ETE) ETE.N have clashed publicly over ETE's efforts to finance its $14 billion takeover of Williams.

Dallas billionaire and ETE Chief Executive Kelcy Warren’s ambitions to buy rival Williams has been beset with problems. A transaction announced Wednesday to raise cash to fund the deal by issuing convertible units to a select group of ETE shareholders was done without Williams’ blessing.

“While we recognize that ETE has taken steps to finance the transaction, we had offered to work with ETE to develop a way of accomplishing this goal that is more beneficial for both companies’ investors,” Williams said in a statement on Thursday.

ETE said it had originally intended to offer the units to all of its shareholders, but Williams would not give its consent for a public offering. Energy Transfer said it had not asked for Williams’ consent for the private offering. Shareholders - including Warren - who hold around 31.5 percent of ETE’s units participated in the offering and agreed to take smaller distributions for up to nine quarters.

Warren, who made his fortune buying up rivals, set his sights on Williams to transform his empire into one of the biggest pipeline networks in the world but the timing was poor. A prolonged drop in oil and gas prices has made it more difficult to finance and to justify to shareholders.

Williams’ shares have often traded significantly below the deal price as a reflection of investor skepticism of ETE’s ability or willingness to close the deal. ETE will need to take on a heavy debt load in order to fund a $6 billion cash payout to Williams shareholders as part of the pact.

The spread between Williams’ share price and the per share value of Energy Transfer’s bid for Williams widened significantly to around 19 percent from around 12 percent at yesterday’s adjusted closing price, suggesting investor skepticism that the companies would be able to close the deal.

Williams said its board remains open to working collaboratively with ETE to improve the financial profile of both companies.

Quinn Kiley, managing director of the MLP & Energy Infrastructure fund at Advisory Research Inc, said the financing was a “mixed bag” for shareholders who are hoping for the deal to close. Advisory Research owned 3.67 million Williams shares and 9 million ETE shares at the end of last year.

“You could say this is raising money to pay for the Williams deal, so this is supportive of the deal,” he said. “You could also point out that this is showing cracks between the companies.”


Energy Transfer would not be able to walk away from the deal, under its current terms. But Williams shareholders still need to vote to approve the deal. Williams has not yet set a date for the shareholder vote.

ETE first approached Williams with an unsolicited bid last June, but was rejected. By the time Williams accepted ETE’s offer in September, the rout in energy had accelerated and the price of a barrel of oil had dropped around 25 percent over that period.

Since then, shares of Williams and ETE have dropped 69 percent and 62 percent, respectively, slashing the value of the stock and cash deal from its original $33 billion.

The Williams board, which was initially divided over the deal, unanimously supported it by mid-January.

Since the takeover was announced, one of Williams' largest customers - Chesapeake Energy Corp CHK.N - has become more constrained by its debt load.

Analysts at Credit Suisse said Williams could lose up to $400 million in earnings before interest, tax, depreciation and amortization, or EBITDA, if Chesapeake tried to use Chapter 11 bankruptcy to tear up its supply contract with pipeline operators.

Chesapeake has denied any plans to file for bankruptcy.

Further rattling investors, Energy Transfer’s chief financial officer Jamie Welch -- originally considered to be the architect of the deal -- left suddenly last month, prompting ETE’s shares to fall nearly 40 percent in one day.

ETE has said that Welch’s departure was not related to any disagreement over accounting or financial matters but did not provide any further details.

Reuters has not been able to reach Welch for comment

Williams shares closed down 8.3 percent at $15.89 after falling as low as $14.84 on Thursday.

Energy Transfer shares were down 4.9 percent to $7.13.

Reporting by Michael Erman in New York; Editing by Jeffrey Benkoe, Meredith Mazzilli, Carmel Crimmins and Bernard Orr