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Delaware Judge Rules ETE Can End Planned Merger with Williams

After a two-day trial, a Delaware judge ruled Friday that Energy Transfer Equity LP (ETE) could terminate its proposed merger with The Williams Companies Inc.

In a ruling in the Delaware Court of Chancery [CA#12168-VCG], Vice Chancellor Sam Glasscock III said the crux of the dispute was Williams' accusation that ETE breached the contractual obligations for the merger by failing to receive an opinion from its tax attorneys on a transaction between Energy Transfer Corp. LP and ETE.

Specifically, Williams said attorneys with the firm Latham & Watkins LLP was to issue an opinion that the transaction "should" be treated by tax authorities as a tax-free exchange under Section 721(a) of the Internal Revenue Code.

"It is clear to me that the proposed transaction, so ardently desired by ETE at the time the deal was inked, is now manifestly unattractive to ETE," Glasscock wrote in his ruling. "Just as motive alone cannot establish criminal guilt, however, motive to avoid a deal does not demonstrate lack of a contractual right to do so.

"If a man formerly desperate for cash and without prospects is suddenly flush, that may arouse our suspicions. Nonetheless, even a desperate man can be an honest winner of the lottery."

The proposed merger initially was valued at $37.7 billion when it was 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 GPI, March 24). Investors have since soured on midstream master limited partnerships, and ETE's shareholders have had doubts about the merger (see Daily GPI, Feb. 25; Oct. 22, 2015).

Earlier this month, Williams said the original projection that a merger with ETE would create more than $2 billion in annual synergies by 2020 was inaccurate, and they now are valued at about $126 million (see Daily GPIJune 20; Sept. 28, 2015). Nevertheless, Williams' board of directors have offered its shareholders a special dividend of 10 cents/share should they vote to approve the merger with ETE at its shareholder meeting on Monday (June 27).

Last 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 claimed that Warren had been trying to sabotage the deal (see Daily GPI,April 6). Williams threw a third lawsuit at ETE last month (see Daily GPI, May 16). In that lawsuit, Williams asked the court to prevent a possible failure to close the deal or resolve the tax issue by Tuesday (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 was unable to close the merger with Williams (see Daily GPI, May 5). If the deal were to collapse, Williams would owe a termination fee of $1.48 billion to ETE (see Daily GPI, May 27).

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