UPDATE 5-Energy Transfer to buy Williams for $33 bln after long quest

Mon Sep 28, 2015 3:04pm EDT
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By Anannya Pramanick and Shubhankar Chakravorty

Sept 28 (Reuters) - Pipeline giant Energy Transfer Equity LP will buy rival Williams Cos Inc in a deal valued around $33 billion, nearly a third less than the same offer Williams had rejected in June for being too small.

The takeover ends a pursuit stretching back to January and marks the first major buyout of a midstream company since oil prices crashed. It will create one of the world's largest energy infrastructure companies, alongside Kinder Morgan Inc. and Enterprise Products Partners.

The mostly stock offer of $43.50 a share comes with the same exchange ratio as an unsolicited bid three months ago that had an implied value of $53.3 billion. Williams turned that down, but its worth has sunk by a third since then as an energy slump that started in mid-2014 drags on. Energy Transfer will take on $4.2 billion in Williams liabilities and issue $6 billion in new debt to finance the transaction.

Investors panned the deal, sending Williams, Energy Transfer and their affiliates down around 10 percent in afternoon trade on the New York Stock Exchange after it became clear the original offer was not sweetened. The accepted offer includes an option to receive 18 percent of the payment in cash.

"Right now energy is sort of a toxic environment," said Quinn Kiley, a managing director at large MLP investor Advisory Research, adding that even a company like Williams with no exposure to crude oil prices has been badly battered in the downturn.

The deal comes at a time when crude oil's more than 50 percent plunge has spoiled investors' appetite for pipeline companies' master limited partnerships (MLPs).

Balance sheets have been stretched by a nearly 30 percent drop in the value of a partnerships, leaving mergers and joint ventures as one of the best means remaining to deliver the yield growth that is essential to attracting investors.   Continued...