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Energy Transfer: Let's Not Make A Deal

Will the merger of Energy Transfer Equity (ETE) and The Williams Cos. Inc. go through? ETE says "no," but Williams is pushing ahead, executives with each company said Thursday during first quarter earnings conference calls.

The ill-fated tie-up was proposed last September (see Daily GPI,Sept. 28, 2015), but since then the collapse in commodity prices has severely eroded the value of projected deal synergies (see Daily GPI,March 24). Lawsuits are in play, and the companies are now wrangling over a tax adviser's opinion related to the deal (see Daily GPIApril 20April 6). The view of those watching is that ETE wants out.

"I'd like to be really direct about this. We can't close," Energy Transfer Partners LP CEO Kelcy Warren told analysts Thursday. "We don't have a transaction that can close. I want to be very clear; we can't close this transaction."

About an hour later, the Williams earnings call began with the advisory that management would not be discussing the merger and that the company's board is "fully committed to enforcing its rights" under the merger agreement.

The deal is currently hung up on an adviser's opinion on a tax ruling. Williams has proposed alternatives that were recently rejected by ETE (see Daily GPIMay 4).

"...[W]e believe there are some serious issues with those alternative proposals as well, so we don't really think that fixes the issue," ETE General Counsel Thomas Mason said in response to an analyst's question. When asked about why the tax issue was coming up so late in the deal process, he described it as "a light bulb moment."

ETE realized there was a problem "a few weeks ago," Mason said. "...I guess how that came about is somewhat perplexing that we didn't realize that there was an issue when we signed the transaction on all parts. But I guess it was one of those light bulb kind of things that came out a few weeks ago and we were, like, just initially, just didn't believe that there would be an issue..."

However, Mason said the company's legal adviser said it is "a big problem," as have other advisers that were consulted.

Warren said the company will honor its agreement with Williams. "We intend to honor all of our commitments under the merger agreement, but we can't close this deal," he said. "We don't have a deal that's closable.

"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. So we'll work it the best we can, and we think Williams will as well. We think we will engage with Williams and attempt to get a transaction that can close, but the one we have now cannot."

June 28 is the walkaway date in the merger agreement. Mason said a provision in the agreement allows for a 90-day extension in the case that all regulatory approvals for the transaction have not yet been secured. He said that likely would not be the case.

"We anticipate having all the regulatory approvals by that date, so we don't anticipate that the 90-day extension would come into play," he said.

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