Fitch: Williams Offer Rejection Neutral for Now

NEW YORK–(BUSINESS WIRE)–Williams Companies’ (WMB; rated ‘BBB-‘ with a Positive Rating Watch by Fitch Ratings) rejection of a $53 billion all-equity unsolicited bid to be acquired by Energy Transfer Equity, LP (ETE; rated ‘BB’ with a Stable Rating Outlook by Fitch) has no immediate impact to current ratings.

WMB announced Sunday that it had rejected the offer citing its belief that the offer undervalued the company, but did announce that it would explore a range of strategic alternatives for the company, including a merger, sale, or continuation of existing operations. The deal represented a 32% premium to WMB’s June 19 closing price. WMB is currently in the process of acquiring its master limited partnership (MLP) subsidiary Williams Partners, LP (WPZ; rated ‘BBB’ with a Stable Rating Outlook by Fitch) in a $13.8 billion deal.

Fitch does not expect that existence of an offer to be acquired to have an immediate impact on WMB’s, WPZ’s, or ETE’s (or any of ETE’s subsidiaries) current credit profiles. No deal has been agreed to as of yet, so the ratings impact to any of the entities involved remains to be seen.

The unsolicited bid and pursuit of strategic alternatives does introduce increased execution risk around the WMB/WPZ merger. If WMB were to terminate the merger, WPZ would be entitled to a $410 million break-up fee. WMB was placed on Rating Watch Positive following the announcement of its intent to acquire WPZ in another all-stock transaction with Fitch expecting to raise WMB’s rating one notch to WPZ’s rating level. WMB announced their intention to continue to work towards the completion of the WPZ transaction while they work through their strategic review. To the extent that the WMB/WPZ merger is terminated or put on hold or an alternative merger or strategic option is pursued by either WMB or WPZ Fitch would likely review its ratings for WMB and WPZ.

From an operational standpoint, Fitch believes WMB’s (and WPZ) addition to the ETE family of partnerships would have many strategic positives. Generally, bigger is better in the MLP space and the size, scale, and geographic and business line diversity that a combination of WMB with the ETE family would create could provide a significant opportunity for benefits on projects and existing assets from all the affiliated entities as well as operational and financial synergies.

More broadly the unsolicited bid and WMB’s willingness to pursue strategic alternatives could signal the possibility for increased large-scale deal making within the midstream energy and MLP space. There have been several deals since the beginning of 2015, but nothing of this size since last year’s Kinder Morgan, Inc. (KMI; rated ‘BBB-‘ with a Stable Rating Outlook by Fitch) roll up. The ETE bid could prompt other midstream names to seek acquisitions or other names to bid on WMB, although the size of the deal and WMB’s market position limit potential suitors.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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