Chancery Court Denies Bid for Merger Termination Fee

(CN) – Energy Transfer Equity is not entitled to a $1.5 billion termination fee after scuttling a $33 billion merger with Williams Cos., the Delaware Chancery Court ruled.

“What, Langston Hughes asked, becomes of a dream deferred?” Vice-Chancellor Sam Glasscock begins his 24-page opinion. “When the dream is a multi-billion-dollar merger that changing market conditions no longer favor, it seems, it becomes a carcass that, like those of millions of turkeys featured in the holiday feasts just past, is diligently picked over.”

In this case, the dead dream was the merger of The Williams Companies and Energy Transfer Equity, L.P. (ETE), two competing pipeline companies, which would have created the nation’s largest natural gas transporter. But after the deal’s announcement, a collapse in the U.S. oil market made a merger far less attractive, and ETE terminated the deal.

Williams filed suit to force the $33 billion merger’s consummation, but a court ruled ETE was able to legally back out without penalty because its counsel could not opine that the merger “should” trigger favorable tax treatment.

Not satisfied with simply walking away from the deal, ETE then sought to recover a $1.5 billion breakup fee under the merger agreement.

Vice-Chancellor Glasscock denied ETE’s counterclaim seeking the breakup-fee, noting that not only did Williams sue ETE to enforce the merger deal, but “ETE – not Williams – terminated the merger upon failure of a condition precedent.” (Italics in original.)

Glasscock agreed with Williams’ argument that “it would be passing strange for two parties to a merger agreement to structure the agreement so that a party which desired to exit the agreement could do so, over the other party’s objections, and at the same time receive the windfall of a substantial termination fee.”

While two companies could legally contract to give one company a windfall, the judge said he found this interpretation of the parties’ contract “unconvincing.”

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