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Energy Transfer-Williams Combo Benefit Withered by Market Turmoil

The proposed buyout of The Williams Companies (WMB) by Energy Transfer Equity LP (ETE) stumbled again Wednesday when ETE disclosed in a regulatory filing substantially lower expected benefits from combining the companies, due to the collapse in oil and natural gas prices.

"At the time of execution of the merger agreement with WMB, ETE expected that the anticipated EBITDA [earnings before interest, taxes, depreciation and amortization]…would exceed $2 billion per year by 2020 and would require overall incremental capital investment of more than $5 billion [see Daily GPISept. 28, 2015]."

After both companies "devoted a significant amount of time" considering synergy opportunities and "taking into account facts and circumstances" occurring since the deal's announcement nearly six months ago, EBITDA from synergies by 2020 is now pegged at $170 million, which is a 92% reduction from the estimate at the time the deal was announced.

The new estimate is based upon "commercial development projects that are reasonably probable to be successfully completed." It also assumes West Texas Intermediate (WTI) crude oil prices ranging from $32.92/bbl this year to $44.31 in 2020, and Henry Hub natural gas prices ranging from $2.34/Mcf this year to $3.11/Mcf in 2020."

Previously, the would-be merger partners came up with a somewhat better outlook for synergies based upon an anticipated recovery in commodity prices. They had pegged the merger earnings lift at $590 million based upon WTI ranging from $53.97/bbl this year to $64.26/bbl in 2020 and natural gas ranging from $3.21/Mcf in 2016 to $3.62/Mcf in 2020.

ETE also warned Wednesday that it could face a downgrade of its credit rating in light of its heavy debt load.

"ETE has a significant amount of debt outstanding," the filing said. As of Dec. 31, 2015, ETE had approximately $7 billion of debt on a stand-alone basis and approximately $36.97 billion of consolidated debt, excluding the debt of its joint ventures."

The company said the merger would add another $6.05 billion of debt for financing and the assumption of about $4.2 billion of WMB debt. "In light of the sustained low commodity price environment and ETE's current leverage and credit profile, there is a risk that the incurrence and assumption of such additional debt could adversely affect ETE's credit ratings," it said.

Earlier this month it came to light that former ETE CFO Jamie Welch is suing the company over his recent firing, alleging that it was due to issues not related to his performance (see Daily GPIMarch 14). Welch's departure earlier this year was accompanied by sharp declines in the prices of ETE, Energy Transfer Partners, WMB and Williams Partners LP shares/units (see Daily GPIFeb. 8).

The wheels on the ETE-WMB deal have been wobbling almost since it was announced (see Daily GPIFeb. 25Oct. 22, 2015).

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