Pipeline giant Energy Transfer Equity will buy rival Williams Cos in a deal valued around $33 billion, nearly a third less than the same offer Williams had rejected in June for being too small.
The takeover ends a pursuit stretching back to January and marks the first major buyout of a midstream company since oil prices crashed. It will create one of the world's largest energy infrastructure companies, alongside Kinder Morgan Inc. and Enterprise Products Partners.
The mostly stock offer of $43.50 a share comes with the same exchange ratio as an unsolicited bid three months ago that had an implied value of $53.3 billion. Williams turned that down, but its worth has sunk by a third since then as an energy slump that started in mid-2014 drags on. Energy Transfer will take on $4.2 billion in Williams liabilities and issue $6 billion in new debt to finance the transaction.
Investors panned the deal, sending Williams, Energy Transfer and their affiliates down around 10 per cent in afternoon trade on the New York Stock Exchange after it became clear the original offer was not sweetened. The accepted offer includes an option to receive 18 per cent of the payment in cash.
"Right now energy is sort of a toxic environment," said Quinn Kiley, a managing director at large MLP investor Advisory Research, adding that even a company like Williams with no exposure to crude oil prices has been badly battered in the downturn.
The deal comes at a time when crude oil's more than 50 per cent plunge has spoiled investors' appetite for pipeline companies' master limited partnerships (MLPs). Balance sheets have been stretched by a nearly 30 per cent drop in the value of a partnerships, leaving mergers and joint ventures as one of the best means remaining to deliver the yield growth that is essential to attracting investors.
Williams will give Energy Transfer chief executive Kelcy Warren a new foothold in the deepwater Gulf of Mexico and a dominant position in the fastest-growing natural gas market in the US: the Northeast's Marcellus Shale. Warren's company is already strong on the Gulf Coast and Midwest in natural gas, crude oil and refined products.
Williams shares fell 9.7 per cent to nearly two-year-low of $37.59, below the offer price of $43.50 per share. Energy Transfer shares were down 11.5 per cent at $20.56. Still, Williams chief executive Alan Armstrong told investors the new company would be stronger.
"As a combined company, we will have ... more stability in an environment of low commodity prices," he said. Williams stockholders electing to receive stock will get 1.8716 Energy Transfer shares for each share held.
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