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ANALYSIS: Williams-Energy Transfer deal in peril; Q1 earnings to prove turning point?

HOUSTON, April 14, 2016 (PCW) -- This week, the proposed acquisition of Williams by Energy Transfer hit yet another bump when the Tulsa-based company sued the latter firm for breaching their deal.

Although the agreement was signed in September, Williams’ board has yet to greenlight the deal as some shareholders have filed multiple class-action lawsuits arguing that some of the synergies and financial benefits from a combined company were overstated. Meanwhile, softening commodity prices have seen both companies’ earnings weaken, margins tighten and capital spending sharply curtailed.

Although Williams stated in its suit it was determined to complete the acquisition in July, the suit has fueled analysts and market observers who have believed the deal would be detrimental to Williams. Prior to the suit, there were suggestions Williams would have to drop plans to build many of its infrastructure plans, including PDH and polypropylene plants in Alberta or an expansion of its cracker in Geismar, Louisiana.

Adding further weight to that idea was Energy Transfer’s stating in an SEC filing in March that it would consolidate operations in ETP’s Dallas headquarters, rather than maintain Williams’ home base in Tulsa, which had been the original plan in September.

The increasingly contentious nature of the deal has played itself out in both companies’ stock prices (see graph below). While ETP’s stock price took a tumble, as did all other energy companies, on the collapse of crude and recovered with its subsequent rally, Williams’ has continued to flag, decreasing about 22% during the year-to-date.

In contrast, ETP’s stock has risen 7.4% during the same time frame alongside WTI crude’s 15.2% uptick. Going forward, first-quarter earnings calls expected in May could provide further clarity on the deal’s fate. -- Samantha Hartke

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