Energy Transfer Equity’s failed 2015 merger with The
Williams Cos. in Tulsa has come back to bite the Dallas-based company in the back.
A lawsuit filed in April 2016 by Kessler Topaz on behalf of common unitholders of ETE is set to go to trial in Delaware. It is scheduled in February of 2018. The suit alleged convertible preferred units were distributed by ETE to “certain but not all ETE common unit holders” as the company was attempting to merge with Williams Cos. The legal action called it “discriminatory distribution” of CPUs that went to ETE Chairman Kelcy Warren, president John McReynolds, their family members and certain other ETE insiders and friends of ETE management for nearly 31.5% of ETE’s common units.
The lawsuit contends the CPUs were distributed in violation of the limited partnership agreement that governs the relationship among ETE,its management and its unitholders.
“We seek a ruling that the CPUs, essentially, be voided and rescinded,” stated the law firm. “We name as defendants ETE, its general partner, McReynolds, other members of ETE’s board, and other ETE insiders who received the CPUs.”
As the lawsuit explained, a major part of the deal between ETE and The Williams Companies was to be a multi-billion cash payment to Williams’ stockholders and ETE had arranged to borrow more than $6 billion to fund the payment. But between September and the end of 2015, oil and gas prices plummeted as did revenues and stock prices for the two companies.
Debt-rating companies became concerned about the $6 billion debt to be assumed by ETE, prompting ETE management in early 2016 to look for a way to back out of the deal with Williams.
By March 2016, ETE announced the CPU distribution and according to the lawsuit, pitched it as a cash-saving measure.
Unitholders weren’t the only ones who thought the CPU distribution was a violation of the merger agreement. So did Williams and it filed suit in Delaware. ETE countersued and a judge ruled ETE could get out of the merger agreement.
But a judge in Delaware has ruled the class-action lawsuit against ETE will go to trial and attorneys have only about 5-6 weeks to prepare.