NEW YORK (Reuters) - Energy Transfer Equity LP Chief Executive Kelcy Warren on Thursday delivered the most public and concrete renunciation of his once-coveted deal for rival Williams.
Speaking on the company’s earnings call, Warren said tax issues would sink the $21 billion deal. It has been in doubt for months, with Williams alleging that Energy Transfer has been actively trying to break the deal as ETE has unveiled numerous issues with the tie-up.
“We can’t close this deal,” Warren said. “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.”
Warren said Energy Transfer would be open to a deal that would remove the cash portion of its cash-and-stock offer for Williams.
Williams, however, remains steadfast. It declined to answer questions about the merger on an earnings conference call on Thursday. But it said its board is still unanimously committed to enforcing its rights under the merger agreement.
The stand-off, preceded by a lawsuit and a countersuit both alleging breaches of the agreement, underscore how acrimonious relations have gotten between the two sides.
Energy Transfer originally raised the tax issues last month. ETE’s lawyers at Latham & Watkins have told the company it may not be able to deliver a needed tax opinion declaring that the deal would be a tax-free exchange. [L2N17L1KI] It has already rejected two possible solutions to the tax issue proposed by Williams. [L2N181182]
Warren has made clear that the deal is no longer attractive – it has slashed its estimates for expected cost savings and said it would likely have to cut its distributions to shareholders entirely next year if it has to complete the deal. It has also said it will have to cut jobs substantially in Williams’ home state of Oklahoma.
Williams is determined to push ahead, attracted by the same $6 billion cash component Energy Transfer argues is weighing down the deal.
“I’ve never heard of an example like this - of this degree of buyer’s remorse,” said Sydney Finkelstein, a professor at the Tuck School of Business at Dartmouth College.
“It was a bad deal from the beginning and they’ve realized it afterward, and now they’re going about the process of trying to get out of the deal in a way that destroys the credibility of their own management,” he said.
Dallas billionaire Warren set his sights on Williams last year to transform his empire into one of the world’s biggest pipeline networks, launching an unsolicited bid in June and reaching a deal in September.
The timing was poor. Oil and gas prices dropped significantly after it was announced at the end of September.
Oil prices have since recovered to around the level they were when the deal was announced, but shares of ETE and Williams are still down substantially.
The companies could face more litigation.
The deal has a June 28 deadline. If all required regulatory approvals are received by then and the deal has not closed, ETE could walk away. But it would risk another suit from Williams.
Even if Energy Transfer is able to extricate itself, few companies are likely to replicate its strategy, said Erik Gordon, a professor at University of Michigan’s Ross School of Business.
“Very few attorneys would recommend the scorched earth tactics, because if they don’t work, what you’ve probably scorched is your own underwear,” he said.
Energy Transfer units closed up 87 cents, or 7.1 percent, at $13.07 on Thursday. Williams rose $1.33 cents, or 6.9 percent, to $20.57.
Reporting by Michael Erman; Editing by Meredith Mazzilli and Dan Grebler