Mutually nix the deal and buy back ETE units at a current less than $5 billion in market cap. A buy of a decade. But most can't recognize this a value of a decade. You already have $6 billion lined up and a 20% plus yield.
The CFO leaving was a shock to institutions as he was brought in to do deals like this so the market is imagining the worst. CHK is not material imo. I did hear they have an undrawn $4 billion revolver, that would get them through a couple of years and analyst said they would be ok at $3 gas. You are right on the capex equity needs, zero. If shale growth continues, this could be the buy opp of a decade. But the CFO thing still bugs me, seems arrogant to think they didn't need to talk about it. Not a vote of confidence for management wisdom/
They already have the bash lined up. WMB owners can vote it down, which seems likely today. Will see what they say about dividends going forward, originally they were going to exceed WMB's guidance of $2.85, that seems a stretch at the moment, which would require a big jump in the ETE dist of $1.14. Problem today is the vacuum of info, the CFO leaving. I suspect he and Warren got crosswise and left. Didn't do the shareholders much good either way. ETE can't walk away. Today, vote no.
ETE can't back out based on FTC requirements, you're wrong on that. They have the cash already committed, they lined that up before the deal. Revised growth nos will be out soon, the may already have FTC response. Either way, the merged cos of stand alone are good bets even in a slower growth scenario. Kind of hope today the deal is nixxed and you are left with WMB paying $2.56 div, what will it be valued at, 10% is $25 stock.
Today imo was the CFO leaving, bizarre. Seems keeping him around for 2 months would have been worth a bunch, as the mkt cap was $3 billion down today. The Baird downgrades didn't help the whole sector and the Barron's article over the weekend. Perfect storm.
WMB can walk for $1.5 billion, ETE has no ability to walk away, subject to damages which would be huge, won't happen. WMB owners could vote it down, ETE has no vote, the GP decides. Today not sure I would vote for it, will get revised growth, dist nos before vote. Might be surprised that the numbers still look good.
Don't think based on IR comments that CHK renog if it happens would be material. CHK will still need to gathering, process gas even in a restructuring mode.
They could mutually nix deal, would think WMB would if approached by ETE but then you have liability for doing so. The financing has been committed.
That's bs, the co put out guidance for WPZ couple of weeks ago, 100% dist coverage for q4, solid operational results, have capex covered with no need for equity for this year, maintain investment grade rating at WPZ.
Confluence of things, the CFO leaving ETE is biggest, probably not material, Warren fired the last CFO too. Wasn't handled well. Timing for deal 60 days after FTC approves, could have already done it but not announced, holding off for 2/17 earnings release. Chesapeake bk if it happens not material, CHK will need to produce that gas. Can't close before 3/18, ETE will revised growth nos in the 30 days after the SEC doc is out. Will have a chance to vote it down. Too early to tell. All of the $6 billion loan for the cash portion is committed. These cos will survive, its' more a matter of how much growth if any. It was 20% plus before the collapse of oil so would expect that to change, but even at no growth for next couple of years in dist, the unit values are too cheap. You have to have a long term view. KMI cut div 75% and it has stabilized and they have much more commodity exposure, they produce 60k barrels per day of oil, at $70 diff $100 to $30, that's $1.5 billion in cash flow at 10% discount rate, that's $15 billion of lost value. ETE/WMB is more a gas co. You have to believe the shales won't grow in the future to not like the prices now.
A couple of weeks ago WPZ declared dist, said 100% coverage of dist in q4, operations good, want to maintain investment grade, no need to issue equity. Nothing there indicates co is near to extreme problems. OIl is $30, nat gas is dismal but up today. The CFO issue is probably the big issue and how do you quantify that, the market is assuming the worst. If the deal is dead, the stock prices should be going up. Maybe Warren wants out and blamed Welch for the deal issues. Welch is an investment banker. Or Welch said it can't be done and Warren wants to do it. I would have paid him to do nothing until the deal is closed, cheap cost. This down draft is head scratching. Or maybe they wanted to crash prices so WMB owners would vote no with no repercussions to ETE. A perfect storm today.
Does anyone remember if there is a penalty if ETE pulls out?
Doesn't help that the Baird MLP analyst, fairly highly regarded, down graded cos today. He took the target for ETE from $30 to $7. What can you say about analysts, why would listen to anything they say. Where was hed from $30 down to $7. Best thing for ETE, WMB is to mutually call the whole thing off, I think they can do it. Both are good cos, good assets, it does require that the shales continue to grow, which today I guess could be argued. The globe will need 1.5mm b/d per year plus another 5mmb/d or so to replace natural declines. Seems the US shales will be a part of that, even 500kb/d of additional makes for a good pipeline business and the nat gas fundamental look good with move away from coal and exports.
I was for the merger before the collapse of commodity prices. Now, I don't see how the deal gets done or whether it should get done when ETE has to pay $6 billion in cash in the deal and WMB owners probably shouldn't want the deal to get done either. The ETE CFO leaving with no info is poorly handled. I would guess he said the deal should die and Warren won't give it up. This merger shouldn't be pursued in the current environment. And we are in this info void, FTC review, earnings coming up. The dist for WPZ and ETP were held level, and both said they won't need to see equity to meet capex this year. Clearly the market values don't reflect those statements. Doesn't help with the CHK rumors and the whole market in a bear market. China issues. Fed concerns even though the 10 T note is 1.7% yld now. My bet is the deal dies and WMB has to revisit growth and financing it. WMB does have a couple of assets that could be sold. Both ETE and WMB have been driven down too much but could take a while for it to be resolved If you have a long term perspective and a iron stomach, buy WMB, I've owned it for over a decade. The whole sector is getting trashed, EPD is down 5% and it's completely safe. Fear and a correlation with oil prices is controlling, just don't know how long it lasts. WMB is a nat gas company and those fundamental still look good.
Feels like the deal will is dead, WMB holders should reject. Curious why Welch left, seems he was the architect of the deal. No announcement from the co?? ETE can't afford to borrow $6 billion for the deal in the current environment, would have been a good franchise but doesn't make sense at $30, $2 commodity prices. They will recover but could be a while '17 at the earliest. Read Grantham's recent letter, Saudis if they crashed the oil price for commercial reasons, made the biggest mistake of all times, if for political reasons, it had better have been a good one, because they have inflicted a bunch on themselves. What they did wasn't rational, but it could strengthen the shale development in the US in the future, the shales have truly become the swing producer with short cycles. And our idiot govt wants to tax oil at this point, would be a tax on middle America and would hurt jobs. In the long run, economics will prevail, in the short run, who knows what politics will produce. The Saudis could have brought prices down to $70 or whatever with a moderate approach but instead we have $30 oil. $40 per barrel at 10mm per day, that's a $150 billion a year in lost revenue. Don't think I'd want to be the one responsible for the strategy.
Oil rigs today were 467, down 31, that's an amazing number when you consider the high was 1600 or whatever. My guess is we would bottom at 600, so much for forecasting. And oil is rolling over slowly. There is no plays book for this cycle.