No Winners For Williams Companies

| About: Williams Companies (WMB)
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WMB still has an activist.

Corvex is putting new pressure on the pipeline operator.

We could see a proxy battle and a renewed interest in merging with WPZ.

Activist investor Keith Meister and his hedge fund Corvex Management is at it again with Williams Companies (NYSE:WMB). Energy Transfer Equity (NYSE:ETE) managed to get out of merging with WMB, and despite the ethics of ETE's tactics, it was a good move for ETE, but not so much for WMB - as WMB must now navigate a hefty debt load and uncertain commodity environment.

Still, since the deal was called off, shares of WMB has been a solid performer. The pipeline company has cut its dividend and said it's only seeking damages from ETE, and won't be looking to force a merger. This comes as six of its 13 WMB's board members resigned last month, including the two activist investors involved - Corvex and Soroban Capital. However, Corvex won't be giving up so easily.

Corvex Coming Back Around

Despite taking the board and CEO to task in a scathing letter, Corvex is still interested in WMB. Meister's letter from last month said that he would be more effective outside the company. Corvex noted that it "will seek to protect our interests and the interest of other shareholders from outside this diminished Boardroom."

The allusion was to a proxy battle and Corvex is now getting more aggressive. Crovex, in a recent statement to WMB, said that it's waging a new effort to overhaul the board. It still owns just over 4% of WMB. So the pressure is still to get a "clean" board.

However, Soroban Capital, the other activist that was involved appears to have given up. The fund is no longer working with Corvex. Still, Corvex is sticking around as it feels that shares are "undervalued." It appear a Corvex led proxy battle is imminent.

The Better Buy?

Right now, neither ETE nor WMB is particularly enticing. ETE shares are up fourfold since its February low and I'm still not sold on WMB as a standalone company. The fact that WMB cut its dividend is a positive, however. WMB cut its dividend by nearly 70% and is looking to invest $1.7 billion in Williams Partners (NYSE:WPZ). But in truth, the WMB strategy hasn't really changed course of late, with it still looking to capitalize on the U.S. natural gas market. WMB needs to figure out a way to aggressively cut costs and forget about its dividend for now. However, WMB left investors with the promise of a potential dividend increase in 2018. As well, WMB has left a potential WPZ deal on the table.

What to watch for at WMB

The key thesis, and what could make WMB interesting, is that we might see a proxy battle. Corvex shows no signs of giving up. Corvex wanted the ETE merger but didn't get it. It's likely they'll push for a WPZ merger. And despite WMB cutting its dividend, its MLP WPZ kept its dividend consistent. That leaves WPZ the cash focused play, while WMB is looking to turn itself into a growth story, being able to redirect its dividend savings into funding capital expenditures.

WMB still has to figure out how to raise enough capital to fund growth capital expenditures. The days of relying on investors to provide enough growth capital for MLPs and their related companies are through for now. WMB will likely continue to underperform the Alerian MLP Index (NYSEARCA:AMLP) until we see a major change, something that Corvex might be able to inflict. The WMB shareholder meeting is in November.

The best commodity play these days

Despite the worry that the master limited partnership (NYSE:MLP) model has been breaking down. I still like ETE as the best play, with a strong backlog. This comes despite the fact that its stock price has more than quadrupled since February. With all that said, there are still commodity plays worth owning. I'm interested in ETE under $15 a share and Freeport (NYSE:FCX) is a name I've covered in the past and will update this week as shares keep moving further away from my idea $10 a share buy price. WMB could be more interesting now that it's cut the dividend, but I'd be more interested if Corvex can gain steam and when they officially wage a proxy battle.

Disclosure: I am/we are long ETE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.