Energy Transfer Equity LP (ETE) terminated its merger agreement with Williams Cos. today, 18 months after ETE began talks to acquire Williams and just six days after a Delaware judge ruled that ETE could walk away from the deal.
What went wrong?
Well, timing is everything. After ETE announced the proposed $32.9 billion takeover Sept. 28, oil prices plunged, starkly decreasing the value of the assets involved in the deal. ETE wanted out and the merger ended up in the Delaware Chancery Court.
At issue in the case was a condition precedent to the agreement: that ETE’s tax attorneys at Latham & Watkins issue a tax opinion prior to closing that the cash-for-stock portion of the merger agreement “should be” treated as tax-free by the IRS under Section 721 of the Internal Revenue Code. When market conditions changed, however, Latham was unable to provide the Section 721 opinion.
Williams filed suit in Delaware seeking a declaratory judgment to prevent ETE from walking away from the deal, maintaining that ETE “materially breached its contractual obligations by failing to use ‘commercially reasonable efforts’ to secure the required 721 Opinion.” ETE, in turn, sought to terminate the merger without penalty given the failure to secure the required opinion.
The court found no material breach by ETE and that Latham acted “in good faith” when it determined it was unable to issue the opinion, thus paving the way for ETE to terminate the agreement today.
Is this the end? It would seem likely, save for some events earlier this week. On Monday, Williams Cos. stockholders approved the merger and the company subsequently announced that it would appeal the ruling to the Delaware Supreme Court.
Stay tuned …
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