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ETE-Williams Merger, Now With Fewer Synergies, Heads to Court

With disputes surrounding the proposed merger between Energy Transfer Equity LP (ETE) and The Williams Companies Inc. headed to a Delaware courtroom, Williams said the deal would result in significantly fewer commercial synergies between the two companies, but also incented its shareholders to vote for the merger.

In the first of two statements last Friday, Williams said the original projection made last September (see Daily GPISept. 28, 2015) that a merger with ETE would create more than $2 billion in annual synergies by 2020 "should not be relied on." Instead, Williams now believes a merger would provide $126 million in annual synergies during that time frame, a reduction of 93.7%.

Williams added that it has "further estimated that even if market conditions return to their July 2015 levels, merger-related synergies would be $543 million, not $2 billion."

Nevertheless, Williams' board of directors made a separate announcement that its shareholders will receive a special dividend of 10 cents/share should they vote to approve the merger with ETE at its shareholder meeting on June 27.

The proposed merger was valued at $37.7 billion when it was first announced last September, but the collapse in commodity prices had a negative impact, and the deal is now valued at about $20 billion (see Daily GPIMarch 24). Investors have since soured on midstream master limited partnerships, and ETE's shareholders almost immediately had doubts about the merger (see Daily GPIFeb. 25Oct. 22, 2015).

According to Delaware Court of Chancery records [CA#12168-VCG], a two-day trial over the proposed ETE-Williams merger will be held Monday and Tuesday, with Vice Chancellor Sam Glasscock III presiding.

In April, Williams filed separate lawsuits against ETE and its CEO, Kelcy Warren, over a private offering of the company's Series A Convertible Preferred Units, and alleged that Warren has been trying to sabotage the deal (see Daily GPI,April 6). Williams and ETE also disagree on a tax matter related to the merger (see Daily GPIApril 20). The court agreed to expedite the lawsuits against ETE (see Daily GPIApril 15).

Williams threw a third lawsuit at ETE last month (see Daily GPIMay 16). In that lawsuit, Williams asked the court to prevent a possible failure to close the deal or resolve the tax issue by June 28 as an excuse for ETE to avoid closing the deal. Williams alleges that ETE violated the merger agreement through various delays.

During a conference call last month to discuss 1Q2016, Warren warned analysts that ETE is currently unable to close the merger with Williams (see Daily GPIMay 5). If the deal collapses, Williams would owe a termination fee of $1.48 billion to ETE (see Daily GPIMay 27).

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