The Delaware Supreme Court’s ruling on Thursday means Energy Transfer doesn’t have to consummate its corporate marriage with Williams and it can press forward with claims its former takeover target owes a breakup fee over the abandoned $33 billion deal.
Dallas-based Energy Transfer didn’t violate the 2015 agreement to buy Williams for more than $43 per share by invoking a tax flaw or allowing buyer’s remorse to hinder efforts to rescue the combination, the state’s highest court said in a 4-1 ruling. Chief Justice Leo Strine dissented.
“ETE did not fail to disclose any facts known to it at the time the agreement was signed,” the court’s majority ruled. Instead, what changed was a tax theory that took into account ETE’s devalued partnership units, Justice James Vaughn said for the court’s majority.
Officials for Williams didn’t immediately return phone calls seeking comment on the ruling. Vicki Granado, a spokeswoman for Energy Transfer, said the company was pleased with the ruling.
Energy Transfer’s attempt to reap a breakup fee in a deal that it found a way to cancel may be a stretch, said Larry Hamermesh, a Widener University professor who specializes in Delaware corporate law. “It would really be surprising” that such a fee would be awarded given the facts surrounding the deal’s demise, he said.
Williams’ officials contend they suffered as much as $10 billion in damages from Energy Transfer’s decision to pull out of the deal and reject the rival pipeline company’s claim that it’s owed a breakup fee under the merger agreement.
The ruling is the latest twist in almost a year of litigation over what has become one of the energy industry’s most notorious failed deals. Neither company now wants to proceed with the merger because of a downturn in the energy market.
Williams’ executives accused Energy Transfer Chairman Kelcy Warren of seeking a pretext to pull out of the merger after oil prices plunged in 2015. The combination had been hailed as creating the U.S.’s largest natural-gas transporter.
Delaware Chancery Court Judge Sam Glasscock allowed Energy Transfer to walk away from the deal in June 2016 after finding the tax flaw crippled the deal. While Glasscock said the timing of the flaw’s discovery raised questions, he found Energy Transfer’s lawyers acted in good faith when they concluded the problem couldn’t be fixed.
Williams’s lawyers argued it was Warren’s buyer’s remorse that drove Energy Transfer executives to find a way to sink the deal. In addition, they argued that attorneys at Latham & Watkins LLP erroneously signed off on the pipeline operator’s flawed tax analysis of the merger’s terms.
In his dissent, Strine said Energy Transfer officials could have easily saved the combination by making “a modest amendment” to the deal’s terms and violated the agreement by not trying to salvage the merger. The judge said he would sent the case for a new trial.
The case is Williams Cos. v. Energy Transfer Equity LP, No. 330, 2016, Delaware Supreme Court (Dover).