Energy Transfer Founder Denies Lawsuit Claims Over failed Merger with Williams Cos.

The case of Tulsa’s Williams Cos. left at the altar by Dallas billionaire Kelcy Warren and his Energy Transfer Equity LP has gone to court in Delaware.

And this week Warren denied claims that he profited unfairly from a 2016 private issuance of units from one of his company’s partnerships linked directly to the failure of a merger with Williams Cos.

“Everybody thinks this is a bad deal,” Warren told a federal court this week as he testified in a lawsuit brought by some unitholders including a Pennsylvania retirement fund. The suit alleges that Warren other executives of his Energy Transfer company mastermind the $1 billion deal and included only select investors just so Warren could make more than $200 million.

As the Dallas Morning News reported, Warren’s lawyers said in court filings the deal was designed to raise cash for Energy Transfer’s $38 billion buyout of Williams Cos., a rival pipeline operator. Investors received the more than 329 million new units in exchange for giving up dividend payments for more than two years.

While SEC documents confirmed Warren got 57 percent of the new units, those disgruntled partnership participants complained the deal created a “superpiority” class of unitholders whose cash distributions would be protected.

The whole merger collapsed in 2016 when a federal judge ruled there was a tax flaw in the buyout’s terms. It was that tax flaw, discovered by Energy Transfer, that allowed Warren to leave Williams Cos. standing alone at the altar. At the time, Energy Transfer and Warren maintained a drop in oil prices made the merger risky.

“Nobody wants to acknowledge how bad things were in 2016,” he said. Warren recalled he told his counterparts at Williams they would be “merging with a sick entity.”

At the heart of the lawsuit is whether the private-unit issuance violated the partnership agreement and if the merger was flawed by conflicts of interest.

Warren testified he had named a company executive to be a one-man conflicts committee and his lawyers and financial advisers reviewed the issuance for fairness.

“I regret I couldn’t offer it to all unitholders,” but his counterparts at Williams refused to allow a public offering, Warren said. Nonetheless, the deal “was fair,” Warren added.

One shareholder, Lee Levine testified the private offering in his opinion was “egregious” and unfair. He holds an estimated 55,000 ETE common units and wasn’t invited to take part in the issuance.

 

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