Williams has hung out a shingle, seeking a potential acquirer after rejecting an unsolicited $64/share all-equity offer from Energy Transfer Equity LP (ETE).
"...[T]he Williams board carefully considered the unsolicited proposal and determined that it significantly undervalues Williams and would not deliver value commensurate with what Williams expects to achieve on a standalone basis and through other growth initiatives, including the pending acquisition of WPZ [Williams Partners LP]."
Last Month, Williams and WPZ agreed for Williams to acquire all of the public outstanding units of WPZ in an all-stock deal with a 1.115 ratio of Williams common shares per WPZ unit (see Daily GPI, May 13). Williams said Sunday it would continue to pursue the deal.
ETE said its offer was worth $53.1 billion, including debt, and represents a 32.4% premium to the June 19 closing price of Williams shares.
"ETE has 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," the company said. "As a result of the announcement of the Williams and Williams Partners LP merger on May 13, 2015, ETE felt compelled to send its written offer to Williams in an effort to bring ETE's interest to the attention of the Williams board and to outline what ETE believes is a more compelling transaction than the proposed merger between Williams and WPZ."
Analysts at Tudor, Pickering, Holt & Co. (TPH) said the $64/share offer was a "fair price" versus the firm's price target on Williams of $60/share.
Williams shares got "a bump" from the WPZ deal announcement last month, but those gains and more, have evaporated, TPH said, adding that investors are concerned about "execution risk."
Acquiring Williams would give Energy Transfer the Transcontinental Gas Pipeline (Transco) and allow it to integrate Transco with its own Rover Pipeline, TPH said. Energy Transfer has been "increasingly aggressive" in expanding Northeast assets, the analysts said.
The last midstream megadeal was Kinder Morgan Inc.'s (KMI) rollup of its master limited partnerships (MLP). CEO Rich Kinder at the time billed the move as necessary to allow the company to raise capital to fund a buildout of infrastructure that would serve increasing production from shale plays (see Daily GPI, Aug. 11, 2014).
KMI is an unlikely suitor for Williams, TPH said, citing antitrust concerns and adding that other larger MLPs appear to have a preference for bolt-on acquisitions. "Outside the midstream universe, [it is] hard to see an IOC [international oil company] benefiting from the rollup of one of the largest 'non-core' assets in the market," TPH said.
Barclays and Lazard were hired by Williams to assist in the review of alternatives, which could include a merger or sale. Williams did not identify ETE as its rejected bidder.
"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," said Williams CEO Alan Armstrong.
"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% since we embarked on our strategy in 2012. In addition, we expect the growth of our business and the benefits from the WPZ transaction to enable 10-15% dividend growth through 2020."
ETE said it believes that a merger with Williams and adding WPZ to its family of partnerships would create “significantly more value” to the Williams stockholders than the proposed merger of Williams and WPZ.
ETE Chairman Kelcy Warren said he would be willing to issue ETE units to fund a deal to acquire Williams, even though he believes they are "significantly" undervalued right now. "...I believe that a combination of Williams' assets with ETE will create substantial value that would not be realized otherwise," he said. "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."