ETE: An Acquisition and Potential Moving Forward

10/06/2015 9:00 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

Despite the slew of lawsuits that have been filed against it after this company announced its acquisition plan, shares rallied, so Michael Berger, of Technical420.com, shares some reasons he's keeping the firm on his radar.

Although numerous lawsuits have been filed against Energy Transfer Equity (ETE) after they announced plans to acquire the Williams Companies, Inc. (WMB), shares rallied 15.7% during the past week. The market did not initially respond favorably to the acquisition and ETE fell approximately 20% following the announcement.

In mid-August, we highlighted ETE due to its potential to create long-term value for shareholders on account of its visible growth backlog and the synergies from its merger with Regency Energy Partners LP.

Terms of Acquisition

ETE agreed to acquire WMB for $32.6 billion and the deal combined two major natural-gas pipeline companies. The combined companies will have a network of more than 100,000 miles of oil and gas pipelines. WMB will provide ETE with geographic diversity given its focus on the northeastern United States. 

Under the terms of the transaction, Energy Transfer Corp LP (ETC), an affiliate of ETE, will acquire WMB at an implied current price of $43.50 per share. WMB shareholders have the right to elect to receive either ETC common shares or cash. WMB shareholders will receive 1.8716 shares of ETC for each share of WMB.

In addition, WMB shareholders will be entitled to a special one-time dividend of $0.10 per WMB share to be paid immediately prior to the closing of the transaction. This one-time dividend is in addition to the regularly scheduled WMB dividends to be paid before the closing of the acquisition.

M&A Activity Continues in Weak Price Environment

As part of the deal, WMB agreed to cancel its plan to acquire its affiliated partnership, Williams Partners (WPZ), in a $13.8 billion deal.

Since WMB rejected a $48 billion offer from ETE in June, many analysts were surprised with this offer.  Since the initial offer, many energy companies have seen their share price plummet due to a weakening commodity environment.

A Growth and Income Investment

ETE offers investors a 4.6% dividend yield and the company has visible growth due to accretive acquisitions made during the last year. A potential catalyst for ETE is moving toward a C-Corp structure, which would attract institutional investors. We are keeping ETE on our radar because the company not only offers growth potential, but a substantial dividend as well.

Michael Berger, Founder and President, Technical420.com

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