Court says ETE can bolt $20 billion Williams takeover

ETE

A Deleware judge ruled that ETE could walk away from its over $20 billion takeover bid of Williams Cos Inc. without penalty.

Williams has said it would appeal any ruling in favor of ETE

By Michael Erman and Tom Hals

NEW YORK/WILMINGTON, Del., June 24 (Reuters) – Energy Transfer Equity won a court ruling on Friday that would allow the pipeline operator to walk away from its more than $20 billion takeover of rival Williams Cos Inc, a deal Energy Transfer agreed to in September but soured on in January.

A Delaware judge ruled that Energy Transfer, or ETE, had not breached the merger agreement when in March it cited a tax problem that would prevent the deal from closing and would allow ETE to walk away without penalty.

Williams said in a brief filed earlier this week that it would appeal any ruling in favor of ETE.

The two companies sued each other in Delaware last month after months of heated disagreement. ETE had been trying to back out of a deal that had become less attractive in the wake of oil price fluctuations and a fall in its shares.

ETE argues that it is not able to close the deal because its tax advisers at Latham & Watkins could not determine that it would be tax-free, as anticipated when the agreement was originally signed.

Delaware Vice Chancellor Sam Glasscock ruled that it was not material whether or not Energy Transfer and it chief executive, Dallas billionaire Kelcy Warren, had been trying to break the deal because he was persuaded that the tax issues uncovered by ETE were valid.

“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,” Glasscock wrote in a 59-page opinion.

Energy Transfer units were up over 8 percent in after-the-bell trading following the ruling. Williams shares fell more than 6 percent.

BURDENSOME DEAL

Energy Transfer’s Warren set his sights on Williams last year to transform his business into one of the world’s biggest pipeline networks. He launched an unsolicited bid last June and reached a deal in late September that was then worth $33 billion.

The timing was poor. Oil and gas prices dropped significantly after it was announced, the companies’ shares fell sharply and investors started to worry that the $6 billion cash portion of the deal would saddle ETE with too much debt.

ETE made it clear that it no longer believed the deal was attractive. It slashed estimates for expected cost savings and said it would likely have to cut distributions to shareholders entirely next year if it had to complete the deal. It also said it would have to cut jobs substantially in Williams’ home state of Oklahoma.

The company also launched a convertible share offering that effectively shields Warren and other top ETE shareholders from a distribution cut.

(Reporting by Michael Erman and Tom Hals in Wilmington, editing by Andrew Hay and Dan Grebler)

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