06.21.15

Hi Folks,

One of our holdings rejected a 33% increase on its shares. This is good news. I am likely to add 4-5 high quality names in this sector that has been knocked down.

Ethan Transfer $ETE is apparently that submitted the bid. I really like where we stand.

The midstream names are in a position to consolidate at rock bottom prices and at rock bottom interest rates. The winners will be us. 

Williams Cos. Rejects $48 Billion Buyout Offer

Pipeline company retains Barclays and Lazard to pursue alternatives

A Williams natural-gas plant north of Parachute, Colo. The company said it is open to other offers.ENLARGE
A Williams natural-gas plant north of Parachute, Colo. The company said it is open to other offers.PHOTO: BRENNAN LINSLEY/ASSOCIATED PRESS

Natural-gas pipeline giant Williams Cos. has rejected an unsolicited buyout offer worth $48 billion but is open to other offers, the company said Sunday.

Williams didn’t identify who made the takeover offer. A person familiar with the matter said the suitor was Energy Transfer Equity LP, based in Dallas. Energy Transfer’s interest was earlier reported by Bloomberg.

Williams said it declined an all-stock offer valued at $64 a share, which is a 33% premium to where its shares closed on Friday. The company has retainedBarclays PLC and Lazard to pursue alternatives, including a merger, a sale of the company or simply continuing on its current path.

“The Williams Board carefully considered the unsolicited proposal and determined that it significantly undervalues Williams and would not deliver value commensurate with what Williams expects to achieve on a stand-alone basis and through other growth initiatives, including the pending acquisition of” Williams Partners, the company said in a statement.

In May, Williams said it planned to absorb its subsidiary, Williams PartnersLP, 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.

Shares of Williams Cos. have risen 7.8% this year to $48.34. Shares of the partnership that Williams controls closed Friday at $53.25, up 4.1% this year. Energy Transfer shares are up 19% this year at $68.39.

Williams has said its consolidation deal likely would close during the third quarter, giving the combined company an enterprise value of $84 billion.

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 also is 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.

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 boost 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, Williams, based in Tulsa, Okla., owns and operates 13,600 miles of pipelines across North America.

Write to Alison Sider at alison.sider@wsj.com and Dana Cimilluca atdana.cimilluca@wsj.com

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