After a May announcement that Williams Cos. Inc. (WMB) would fold its MLP Williams Partners LP into the C corp, the Williams story took a new twist June 21 after the company rejected an unsolicited $53.1 billion bid from Energy Transfer Equity LP (ETE).

The company has spurned ETE’s overtures for months. The all-equity takeover would have consisted of $48 billion for WMB’s common stock and $5.1 billion for assumption of liabilities. The offer was also dependent on the cancelation of Williams' pending merger with Williams Partners LP (WPZ).

Despite a 32% premium to Williams' last closing price, the $64 per share offer was deemed too low.

Williams said in a press release that its evaluation of the offer “determined that it significantly undervalues Williams and would not deliver value commensurate with what Williams expects to achieve on a standalone basis and through other growth initiatives.”

ETE has been courting Williams for about six months, but felt compelled to send a letter to the company after the May 13 announcement that Williams and Williams Partners would merge, the company said in a June 22 press release. It followed up with letters in June, one to Williams' board.

“ETE is disappointed that, despite the best of intentions and its efforts to reach a friendly, negotiated combination, it is forced into a position to publicly confirm its offer for Williams,” the company said.

Until its announcement June 21, Williams’ management had ignored ETE’s efforts to engage in a discussion, ETE said

While Williams' announcement stated that it would not accept the offer, ETE may not be out of the game just yet. Williams stated it would continue to evaluate potential transactions.

“Given Energy Transfer’s interest in the Marcellus/Utica, they may not give up easily,” Simmons & Co. International analyst Mark Reichman said in the investment bank’s “Morning Energy Note” for June 22.

“After all, Williams has an enviable portfolio of assets and commercial relationships in the region and a long-tailed backlog of development projects.”

Acquiring Williams' assets in the Northeast as well as the Transco Pipeline system offers expansion opportunities to ETE that are not available elsewhere, according to a June 22 note from Tudor, Pickering, Holt & Co.

“Transco ownership would allow [ETE] to integrate the Rover Pipeline and further end-market expansions as system continues transition to East Coast supply header vs. historical long-haul,” the note said.

Additionally, securing Northeast gathering and processing assets would allow ETE to direct liquids to Sunoco Logistics Partners LP’s Mariner System and complete the commercial value chain.

If ETE were to acquire WMB, it could re-shuffle its current assets with assets held by WMB to optimize asset value, Reichman said.

“ETE could choose to operate Williams Partners as a stand-alone entity,” as it would acquire the 60% ownership interest in the partnership that WMB currently holds, he said.

Williams Partners unit holders could benefit since “distribution growth and the potential for future M&A activity is uncertain.”

Tudor Pickering agreed it will be necessary to address the “converging LP/GP growth rates and persistent coverage issues” Williams Partners is experiencing.

ETE “would clearly need to support growth in the near-term by selling assets” to the partnership, the note said.

If the transaction goes through, ETE could support the partnership’s growth by selling Energy Transfer Partners LP’s (ETP) interstate pipelines to Williams Partners as a complement to the Transco Pipeline. It could also structure the MLPs geographically—“for example making one the ‘Northeast midstream co.,’” the note said.

Price Forecasts

Analysts took differing viewpoints as to how Williams’ rejection of the offer, and its exploration of alternative transactions, should impact share and unit prices.

Darren Horowitz, analyst, Raymond James Energy, wrote in an update he expected shares and units of the Williams family to trade up on the news.

“This is a strong statement from management regarding its perception of the family’s current market valuation with additional upside from a more favorable strategic alternative still a possibility,” he said.

Reichman was less enthusiastic. He expects Williams shares will likely continue strong but Williams Partners units could take a hit after rejecting the offer.

“Clearly, ETE’s unsolicited offer will complicate matters,” he said.

“Regardless of whether a higher bid emerges, Williams shareholders will need to be convinced that existing management will be able to deliver equal or greater shareholder value,” Reichman said.

While holders of Williams Partners units have enjoyed a boost in unit prices after the announcement that WMB would roll the MLP up into the C corp, “the disclosure of ETE’s unsolicited bid for WMB creates uncertainty,” Reichman said.

“We would not be surprised if WMB shares enjoy a boost following the announcement based on the potential for a higher offer to materialize but [Williams Partners] units could be pressured due to the uncertainty of future outcomes for unit holders.”

Contact the author, Caryn Livingston, at clivingston@hartenergy.com.