Energy Transfer/Williams: safe spaces

Maybe Jamie Welch is the lucky one. In February Mr Welch was dumped as finance chief of Energy Transfer Equity LP, a huge operator of US oil and gas pipelines. The company was busy fighting to complete an audacious deal to buy rival Williams Companies for $38bn. Mr Welch was reportedly not keen on the combination, putting him at odds with Kelcy Warren, architect of the Energy Transfer empire. It turns out that Mr Welch’s views about the risks of the transaction were prescient: this week, Mr Warren admitted that the merger, as constructed, cannot be closed.

Org charts of pipeline operators are as labyrinthine as the pipelines themselves: a maze of corporations, general and limited partnerships. Putting two such tangles together is difficult. Yet the problem with this deal amounts to a single number. Energy Transfer offered mostly equity to Williams shareholders but there was also a cash payment of $6bn. So much new debt on the combined company’s balance sheet could be destabilising, now that lower energy demand has reduced profits. Energy Transfer has tried to back away after the deal was signed; Williams is having none of it.

The back-and-forth has been good news for the lawyers if no one else. Mr Welch is suing over his dismissal. Williams shareholders have sued Energy Transfer over the complicated financing it completed this year, which Williams believes would harm holders of ordinary Energy Transfer shares. Energy Transfer’s lawyers have said they may not be able to provide the tax opinion needed to complete the deal.

Williams is in a delicate spot. It has the right to enforce the terms as signed. But as its shareholders will take most of the consideration in stock, a weakened Energy Transfer is also not in its interests. The parties appear to be seeking a compromise but a deal is a deal. Any concessions Williams offers will not come for free. The really lucky ones are safe on the sidelines.

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