Energy Transfer to buy rival pipeline company Williams Cos

Energy Transfer will take on $4.2 billion in Williams liabilities and issue $6 billion in new debt to finance the transaction.

The transaction ranks among the largest in the North American pipeline industry, which past year saw Kinder Morgan Inc. consolidate its partnership assets into one company through transactions with an enterprise value of more than $40 billion, according to data compiled by Bloomberg.

Under Monday’s agreement, affiliate Energy Transfer Corp LP will acquire Williams for $43.50 per share.

“I am excited that we have now agreed to the terms of this merger with Williams”, Energy Transfer’s Chairman Kelcy Warren said in a news release. Its most important asset, the Transco interstate pipeline system, connects the gas-producing regions of South Texas with the most important gas-consuming market in the country, New York City. (Credit: AP) Under the terms of the acquisition, shareholders of the Tulsa, Oklahoma-based natural gas giant will receive a combination of cash and stock with…

Williams holders also would be eligible to a one-time special dividend of 10 cents per share held.

Both companies’ boards approved the deal, which is expected to close in the first half of 2016. The deal comes as Williams Partners L.P. (WPZ) and Williams said they were terminating their previously-announced merger agreement, leading to Williams paying Williams Partners a $428 million termination fee.

Williams operates about 33,000 miles of pipelines, and has a strong presence in the gas-hungry Northeast that has made the company an attractive target for competitors looking to access that market. On average, equities research analysts predict that Energy Transfer Equity will post $1.09 earnings per share for the current year.

Shares of ENERGY TRANSFER PARTNERS (NYSE:ETP) ended Friday session in red amid volatile trading. Williams stockholders electing to receive stock consideration will receive a fixed exchange ratio of 1.8716 ETC common shares for each share of WMB common stock, before giving effect to proration.

But the use of a traditional C-corp entity as the acquisition vehicle in this deal is the latest sign that major energy companies are leaning away from master limited partnerships (MLPs).

Energy Transfer is a master limited partnership.

The stock-and-cash deal will combine the companies’ pipeline and natural gas processing networks at a time when low commodity prices are testing the energy business, the companies said.

Energy Transfer shareholders may also be concerned that the company is converting to a corporate structure as part of the deal. The shares were bought at an average cost of $45.11 per share, with a total value of $59,770.75. That bid came as Williams was moving to acquire the 40 percent of Williams Partners it did not already own.