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ETE And WMB Merger Legal Battle

|Includes: Energy Transfer LP (ET)

Regarding the pending merger between ETE and WMB, I would like to make three observations as following:

1. Under current market condition, from the most recent earning call from ETE in early May, ETE has inidicated it can not close the merger under the current merger agreements. The CEO during the conference call mentioned more than 7 times, the deal is not closable.

2. Most likely this dispute will be fought through the court in the next a few weeks, the chance for WMB to force the deal through is very slim from the legal point of view. The real reason WMB is still proceeding for the shareholder approval meeting on the 06/27 is trying to ask for a bigger break up fee from ETE.

3. The main reasons why the court ruling will favor ETE are three: (1) The merger agreement stipulates both ETE and WMB must receive 721 opinion from Latham before the merger can be complete. (2) Latham is the only party which is allowed to give such an opinion in the contract. (3) Without receiving such a 721 opinion from Latham, either party can terminate the merger agreement without liability.

Most investors here have not read the original contract, so very puzzeld by the speculation and rumour, the share of ETE tanked more than 9%, it is caused by confusion and panic. Fundamentally, nothing has changed, the management of ETE has made a very firm decision not to proceed the merger under the current form, unless drastically restructured, the merger is dead. From now on, ETE will only focus on its own new projects to grow the business, M&A will not be on its agenda for many years to come.

Disclosure: I am/we are long EPD.