Pipeline giant Energy Transfer Equity LP will buy rival Williams Cos Inc in a deal valued around $33 billion, nearly a third less than the same offer Williams had rejected in June for being too small.
The takeover ends a pursuit stretching back to January and marks the first major buyout of a midstream company since oil prices crashed. It will create one of the world's largest energy infrastructure companies, alongside Kinder Morgan Inc. and Enterprise Products Partners.
The mostly stock offer of $43.50 a share comes with the same exchange ratio as an unsolicited bid three months ago that had an implied value of $53.3 billion. Williams turned that down, but its worth has sunk by a third since then as an energy slump that started in mid-2014 drags on. Energy Transfer will take on $4.2 billion in Williams liabilities and issue $6 billion in new debt to finance the transaction.
Investors panned the deal, sending Williams, Energy Transfer and their affiliates down around 10 percent in afternoon trade on the New York Stock Exchange after it became clear the original offer was not sweetened. The accepted offer includes an option to receive 18 percent of the payment in cash.
"Right now energy is sort of a toxic environment," said Quinn Kiley, a managing director at large MLP investor Advisory Research, adding that even a company like Williams with no exposure to crude oil prices has been badly battered in the downturn.
The deal comes at a time when crude oil's more than 50 percent plunge has spoiled investors' appetite for pipeline companies' master limited partnerships (MLPs).
Balance sheets have been stretched by a nearly 30 percent drop in the value of a partnerships, leaving mergers and joint ventures as one of the best means remaining to deliver the yield growth that is essential to attracting investors.
Williams will give Energy Transfer Chief Executive Kelcy Warren a new foothold in the deepwater Gulf of Mexico and a dominant position in the fastest-growing natural gas market in the United States: the Northeast's Marcellus Shale. Warren's company is already strong on the Gulf Coast and Midwest in natural gas, crude oil and refined products.
Williams shares fell 9.7 percent to nearly two-year-low of $37.59 on Monday, below the offer price of $43.50 per share. Energy Transfer shares were down 11.5 percent at $20.56.
Still, Williams Chief Executive Alan Armstrong told investors the new company would be stronger.
"As a combined company, we will have ... more stability in an environment of low commodity prices," he said.
Williams stockholders electing to receive stock will get 1.8716 Energy Transfer shares for each share held.
Williams stockholders will also receive a special one-time dividend of $0.10 per share to be paid immediately before the closing of the deal -- expected by the first half of 2016.
Energy Transfer had said that its offer was contingent on the termination of Williams' pending acquisition of natural gas master limited partnership Williams Partners, in which Williams holds a 66 percent interest.
Williams Partners said on Monday it would terminate the deal and receive $428 million in a termination fee from Williams.
Williams Partners will be one of three large investment grade MLPs held by the combined entity, a corporation called Energy Transfer Corp LP. The other two are Equity Transfer Partners LP and Sunoco Logistics Partners LP.
But the use of a traditional C-corp entity as the acquisition vehicle in this deal is the latest sign that major energy companies are leaning away from MLPs.
Kinder Morgan scrapped its MLPs last year and reorganized as a C-corp to quell concerns it had grown too complicated.
Investors like MLPs because their tax-free structure helps generate hefty yields, but the structures can become unwieldy.
As a partnership grows larger over time, it is frequently required to pay more income to its parent company because of so-called incentive distribution rights. These can sap its ability to expand and raise the cost of capital.
(Additional reporting by Anna Driver in Houston)