Business Context and Reporting Period
This Form 8-K, dated September 28, 2015, reports that Energy Transfer Equity, L.P. ("ETE") and The Williams Companies, Inc. ("Williams" or "WMB") have entered into a definitive Agreement and Plan of Merger. Under the agreement, Williams will merge into Energy Transfer Corp LP ("ETC"), a newly formed subsidiary of ETE. The transaction is structured to be tax-free to Williams stockholders, except for cash received.
Key Financial Metrics and Transaction Terms
The filing details the consideration offered to Williams stockholders and the financing secured for the transaction:
- Merger Consideration: Williams stockholders may elect to receive:
- Mixed Consideration: $8.00 in cash and 1.5274 ETC common units per share.
- Stock Consideration: 1.8716 ETC common units per share.
- Cash Consideration: $43.50 in cash per share.
- Pre-Merger Dividend: Williams is entitled to declare a special one-time dividend of $0.10 per share, contingent on the closing of the merger.
- Financing: ETE secured a $6.05 billion 364-day senior bridge term loan credit facility from a syndicate of lenders including Morgan Stanley, Citigroup, and J.P. Morgan.
- Ownership Structure: Following the transaction, ETE will own approximately 19% of the outstanding ETC common shares.
- Termination Fees:
- Williams to pay ETE: $1.48 billion under specific termination scenarios (e.g., superior proposal, change in recommendation).
- ETE to pay Williams: $410 million as reimbursement for fees paid to Williams Partners, L.P. under a prior terminated agreement.
Financial Performance: This filing does not provide revenue, profit, cash flow, margin, or debt metrics for the reporting period. It is a current report regarding a material agreement, not a periodic financial report.
Material Changes and Contingent Consideration
The transaction introduces a unique contingent consideration mechanism known as Contingent Consideration Rights ("CCRs"). Each ETC common share issued will have an attached CCR. If the volume-weighted average trading price of ETC shares over a 23-month measurement period is lower than that of ETE units, ETC must pay the difference (the "Shortfall Amount") in cash or shares. Conversely, if ETC shares trade higher, ETC will return a portion of its ETE Class E units to ETE. The CCRs will expire with no value if ETC shares trade at or above ETE units.
Guidance, Outlook, and Risks
Outlook and Conditions: Completion of the merger is subject to customary closing conditions, including approval by Williams stockholders, regulatory approvals (including the expiration of the Hart-Scott-Rodino waiting period), and the effectiveness of a registration statement on Form S-4. The agreement may be terminated if the merger is not consummated by June 28, 2016, extendable to September 28, 2016.
Risks and Uncertainties: The filing includes standard forward-looking statement disclaimers. Key risks identified include:
- Failure to obtain required regulatory or stockholder approvals.
- Integration challenges and the ability to realize expected synergies.
- Fluctuations in market prices of ETE and ETC securities.
- Diversion of management time due to transaction-related issues.
- Changes in credit ratings for the involved entities.
Investor Verification Checklist
- Verify the final election results of Williams stockholders regarding the mix of cash versus stock consideration.
- Monitor the status of regulatory approvals, specifically the Hart-Scott-Rodino waiting period.
- Review the upcoming proxy statement/prospectus for detailed financial projections and risk factors.
- Track the trading price relationship between ETC common shares and ETE common units to assess the potential value of the Contingent Consideration Rights (CCRs).
- Confirm the final terms of the $6.05 billion bridge financing and any subsequent permanent refinancing.