Williams (WMB) Sues Energy Transfer Equity Over Merger

Premier energy infrastructure provider in North America, Williams Companies, Inc. (NYSE:WMB) has filed a suit against Energy Transfer Equity LP (NYSE:ETE) to ensure that their merger remains on track. The company took the legal step when the latter expressed concerns over the merger citing that the deal had not secured the necessary legal opinion to make the transaction tax-free to shareholders.

Williams sued Energy Transfer Equity in the Delaware Court of Chancery to prevent the latter from canceling the merger over tax issues, so that the deal materializes on Jun 28 as scheduled.

This is the third separate lawsuit filed by the company over the span of six weeks. Prior to this, Williams had accused Energy Transfer Equity and its chief executive officer Kelcy Warren of violating their merger agreement by making a private convertible preferred share offering to the partnership’s top investors.

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, due to a sharp decline in oil prices, shares of both companies plunged more than 60% and offer price plummeted to about $14 billion with the company still having to pay the cash amount. The $6 billion of cash has made this pending merger a nightmare for Energy Transfer Equity given that borrowing this amount in a down market will leave the company overleveraged.

Energy Transfer Equity is suffering from buyer’s remorse and is searching for ways to escape the deal in deteriorating financing markets. Williams, on the other hand, is keen to complete the takeover as the deal, if abandoned, would cost its shareholders $10 billion in lost value.

Williams Companies is one of the largest domestic transporters of natural gas by volume. The company’s core operations include finding, producing, gathering, processing, and transportation of natural gas.

Williams Companies currently carries a Zacks Rank #3 (Hold), which implies that the stock 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 are Seadrill Partners LLC (NYSE:SDLP) and Pembina Pipeline Corporation (NYSE:PBA) .Both these stocks sport a Zacks Rank #1 (Strong Buy).