Energy Transfer (ETE) Terminates Merger Deal With Williams

Texas-based pipeline company Energy Transfer Equity L.P. (NYSE:ETE) reported the termination of its merger agreement with natural gas pipeline company Williams Companies, Inc. (NYSE:WMB) . The announcement came on the heels of the ruling by the Delaware Court of Chancery.

Last week, the Delaware Court of Chancery ruled in favor of Energy Transfer Equity. Notably, the ruling came in a lawsuit filed by Williams to hold Energy Transfer Equity to the deal. In May, Williams took the legal step when Energy Transfer Equity expressed concerns over the merger citing that the deal had not secured the necessary legal opinion to make it tax-free for shareholders.

However, much to the dismay of Williams, the Delaware Court of Chancery concluded that Energy Transfer Equity is contractually entitled to end the merger with Williams if the counsel of the former – Latham & Watkins LLP – were unable to deliver a required tax opinion prior to the merger deadline date of Jun 28, 2016.

Williams, however, has appealed against the decision of the Delaware Court of Chancery to the Delaware Supreme Court. The move came after the company received approval from its investors to close this troubled deal on Monday, Jun 27.

Last September, Energy Transfer Equity had valued its acquisition agreement with Williams at $33 billion and had agreed to pay $6 billion in cash to Williams as part of the cash-and-stock acquisition. However, the deal became less attractive due to a sharp decline in oil prices later. The cash payment of $6 billion made this pending merger a nightmare for Energy Transfer Equity given that borrowing this amount in a down market exposed the company to the risk of being overleveraged.

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Energy Transfer Equity, through its subsidiaries, provides diversified energy-related services in the U.S. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end users, and other marketing companies.

Tulsa, OK-based Williams is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transportation of natural gas.

Both the companies currently carry a Zacks Rank #3 (Hold), which implies that the stocks will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the energy sector include Sasol Ltd. (NYSE:SSL) and World Point Terminals, LP (NYSE:WPT) . Both these stocks sport a Zacks Rank #1 (Strong Buy).