Having rejected a $48 billion bid in June from Energy Transfer Equities (ETE), The Williams Companies (Williams) have accepted a lower offer at $37.7 billion from the suitor in the latest sign of the toll commodity prices have had on the natural gas sector.
The transaction, which includes the assumption of $4.2 billion of Williams's debt and other liabilities, is expected to close in the fall of 2016. It is to be funded by a combination of $6.05 billion in cash, generated from a new debt offering, and equity in a newly created up-C corporation Energy Transfer Corp (ETC).
Following the news, Fitch Ratings placed ETE's Rating Watch Positive. Key ratings drivers listed by the agency included increased scale and diversity, continued growth at partnerships, and expected improvement of leverage metrics.
In a statement, the agency said that the company will have significant geographic diversity and an advantageous focus on the northeastern US “where there is significant demand for midstream service solutions”.
“From an operational standpoint, Fitch believes [Williams'] and [Williams Partners'] addition to the ETE family of partnerships will have many strategic positives,” the Fitch release said. “From a financial perspective, Fitch expects ETE's cash flow to diversify and increase, as [Williams Partners] limited partner and general partner incentive distributions will become the largest provider of cash flow for ETE.”
According to Fitch, ETE has access to a $1.5 billion secured revolving credit facility that matures in December 2018 after drawing $230 million in June 2014 leaving $1.27 billion in availability, which was upped to $1.5 billion in February.
The announcement follows the previously terminated merger of The Williams Companies with master limited partnership Williams Partners.
The merger creates the largest energy infrastructure group in the US, the third-largest energy franchise in North America and one of the five largest global energy companies, and according to the statement.
Williams' president and chief executive Alan Armstrong said his company's “intense focus on connecting the best natural gas supplies to the best natural gas markets will be a significant complement to the ETE family of diverse energy infrastructure”.
“Importantly, Williams Partners will retain its current name and remain a publicly-traded partnership headquartered in Tulsa, Oklahoma.”
Under the transaction terms, ETC will acquire Williams at an implied current price of $43.50 per Williams share. Williams' stockholders will have the right to elect to receive as merger consideration either ETC common shares and/or cash, the release said. Investors seeking stock consideration will receive a fixed exchange rate of 1.8716 ETC common shares for each share of WMB common stock.