Shares of Williams Cos., the natural-gas pipeline giant, surged
24% in Monday morning after it rejected a nearly $50 billion buyout
offer from Energy Transfer Equity L.P. Now the pressure is on for
Williams to find a richer deal or prove it can deliver better
results as a stand-alone company than it has historically, analysts
said.
Energy Transfer, another big U.S. oil and gas pipeline company
based in Dallas, proposed an all-stock deal for Tulsa-based
Williams at $64 a share, or a nearly 33% premium over the company's
Friday close. Williams's board of directors said the deal price was
too low, but invited other potential suitors to come calling.
Williams has retained Barclays PLC and Lazard to pursue
alternatives to the Energy Transfer deal, including a merger, a
sale of the company or simply continuing on its current path.
"With offer rejected, WMB must either convince the market of its
ability to stand on its own merit or accept a reasonable takeout
offer," Tudor Pickering Holt & Co. analysts said.
Williams shares rose 24% to $59.52 a share in early morning
trade, while shares of Energy Transfer were down 2.5% at $66.60
shortly after the market opened.
Energy watchers have speculated that pipelines are coveted,
high-value infrastructure that is attractive to own even though oil
and gas prices have plunged over the last year. A few said Williams
was right to hold out for more money.
"I wouldn't be surprised if a higher offer comes in," said
Raymond James analyst Darren Horowitz. "I don't think that this
offer truly reflects the long term intrinsic value of
Williams."
Billionaire Kelcy Warren, who is chief executive of Energy
Transfer, said he was disappointed that Williams chose to ignore
his company's overtures. The company said it has tried to engage
Williams for nearly six months and has made written offers in a
series of letters to the company's management and board.
"I believe that a combination of Williams' assets with ETE will
create substantial value that would not be realized otherwise," he
said.
But Williams is already on a path that it has said will make its
investors better off. In May, Williams said it planned to absorb
its subsidiary, Williams Partners LP, in a $13.8 billion deal. At
the time, the company said that combining and simplifying its
corporate structure would make it more efficient and better able to
expand in the future.
On Sunday, Williams said the offer it rejected was contingent on
that simplification process being called off.
Energy Transfer's offer complicates matters, said Simmons &
Co. International analysts. "Regardless of whether a higher bid
emerges, WMB shareholders will need to be convinced that existing
management will be able to deliver equal or greater shareholder
value," they wrote in a client note.
Companies that own pipelines and other energy infrastructure
have been somewhat insulated from the dramatic drop in the price of
oil and gas over the last year. That is because they tend to
operate based on fixed-fee, long-term contracts that pay the same
amount of money whether energy prices are high or low.
But Williams is also exposed to the plummeting price of some
fuel known as natural gas liquids, which include propane and
ethane. In addition to pipelines, Williams owns many natural gas
processing facilities, which earned slimmer margins this year. Last
year the company faced pressure from activist investors who
encouraged the company to look into a sale or combination with
another company.
Analysts have been predicting that energy transportation and
storage companies would combine in a series of mergers and
acquisitions.
"It's game on for consolidation and empire building," said
Robert W. Baird analyst Ethan Bellamy.
Energy Transfer is a master limited partnership. The special
structure allows it to avoid most corporate taxes, while paying out
much of what it makes to shareholders. To grow those rich
dividends, MLPs must get bigger through acquisitions.
Energy Transfer got its start in 1995 with a tiny network of
less than 200 miles of pipelines that moved natural gas around
Texas. Since then the company has created an intricate network of
70,000 miles of oil, gas and fuel pipelines around the country. In
more recent years, Energy Transfer expanded its web by acquiring
major interstate natural gas pipeline operators, including Southern
Union Co. and Panhandle Eastern Pipeline Co.
Geographically, a deal with Williams would give Energy Transfer
a vastly expanded footprint. Williams has significant fuel-moving
capabilities in the northeastern U.S., while most of Energy
Transfer's pipelines are located across the south and Midwest.
Williams's roots in moving fuel around North America go back to
1919, but it was the 1995 acquisition of Transco Energy Co. that
expanded its system to the U.S. East Coast and made it one of the
nation's largest natural gas transporters. Today, Tulsa-based
Williams owns and operates 13,600 miles of pipelines across North
America.
Write to Alison Sider at Alison.Sider@wsj.com and Dana Cimilluca
at Dana. Cimilluca@wsj.com
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