Pj, think you are right, WMB is a $25+ value. The lawyers are in control. Warren is something else. He couldn't get away with this if ETE were a corporation with a board to answer to. That gives me some pause, too much control by him without some balance. But he has been successful, you probably don't want play poker with him.
Warren is pulling out the stops if this is it.
NEW YORK, April 18 (Reuters) - U.S. pipeline company Energy Transfer Equity said on Monday its lawyers may not be able to deliver a tax opinion for its takeover of rival Williams Cos Inc, and the two companies are in talks on the impact this could have on the closing of the deal.
Energy Transfer said in a filing with the U.S. Securities and Exchange Commission that Williams disagrees with this position on the tax issues.
pj, I guess we could retest lows but I don't feel like it happens now, the US vols are moving in the the right direction. Not sure anyone knows the ME reall capacity, lying to each other.
The longer this goes, the better no matter what the outcome. We could have $50 oil soon and if midstream values move up, the merger will look good or the individual cos will look good on their own. Both are undervalued 40% ish compared to other midstream cos.
The OPEC mtg was a media event, OPEC is history, they just don't realize it, think they are in control of global supply, in the future that will be as much decided in Midland. The ME won't near as important to global security.
OPEC is history, SA produces 10% of global supply, not enough to do what they once did. This was a media event, a buy opp today.
The OPEC result is meaningless, the agreement would have been for production limits in January. If there is a material downturn tomorrow, a buy opp. Prices will be at the mercy of supply and demand and price will be determined by the market. Too little is been found and produced at $40 to supply the globe. The swoon may not last long.
The $1.5 b and $410mm payment aren't comparable if I read it correctly, WMB can walk for $1.5 b and that is sole remedy. ETE pays the $410 is certain things happen or don't happen, they can't just pay it and walk. Will be interesting to see how it plays, does Warren really want out or would he put his interests above the rest of the company owners. Would guess WMB wants out with some money and ETE wants out without paying anything. Stay tuned.
I think you're absolutely right, just need to calculate the highs and lows of the cycle, $26, the easy one, seems the low. 18 we hit a high and start over again. Seems the US will be the focal point. Seems it could be a more rational process, except you still have upside risks with ME turmoil, but you won't have excess supply punishing whoever.
That's wrong, WMB penalty is $1.5 billion and ETE has no stated penalty, just liable for damages for breach of contract. Believe rejection by WMB holders, WMB pay $50mm.
The OPEC meeting is nothing more than a media event. Would guess, no one knows for sure, the OPEC members lie to each other, is that the world is producing flat out, with no cash for further development. OPEC has become irrelevant if the Saudis have given up modulating their production. Still think they see their future in downstream vs upstream, so what they give up in comm price, they make up further downstream. No matter what OPEC says, it will be forgotten in a couple of weeks at the most. The US shales are down 700kb/d so far and going lower. The world needs probably half a million more each year from the shales to supply the globe with the rest coming mostly from the ME. And $40 is not going to cut it.
Comparing ETE to PAGP, the latter a pure GP, ETE almost. PAGP is selling for 10x DCF. ETE at that multiple should be $12. Without the deal, ETE has a higher growth profile, should have a higher multiple, 12x at least 15x high side, $14 to $18 value. Merged co, probably should be the low side 12x, $14 ETE, WMB $30.
So standalone, ETE 15x $18, 100% appreciation. WMB 11x DCF $28, 60% appreciation. And merged ETE, 55% appreciation and WMB 70%. Killing the deal is more advantageous for ETE than WMB short term. Both probably better off long term.
Seems Warren has nothing to lose by stringing it out except if it is a breach, who knows what WMB could get in damages, the $2 billion might look like a small no. I do think WMB should be $10 higher if it weren't for the deal, at 750mm shs, that's $7.5 billion in lost value because of the deal. This also could backfire on Warren. His best bet is to offer something, a billion, that's only a dollar a unit, scuttle the deal and move on.
You are wrong, that no. was a rumor of what ETE might pay to get out, they have no penalty amount if the fail to carry through, except for damages. WMB wouldn't pay a thing if the contract is breached, which a court could decide. If the conv plan is a breach and Warren refuses to cancel it, then the legal battle is prolonged. Who knows, maybe that is Warren's strategy, string it out until we get to $80 oil by the end of the year. ETE recovers and he closes the deal. You really don't know what his strategy is and over the WMB Board, I would bet on Warren. Although WMB has top flight lawyers, might be surprised, at least they are saying the right things, not risking the penalty.
Bottom line for me it is probably not a good bet against Warren. He has done a remarkable job building ETE but you want to be aligned with him as closely as possible. The conv pref took that away, you already had the ETC vs ETE issue. Seems every day, I swing from one choice to the other. The longer this goes with comm prices going up, the better the outcome no matter what it is. The $6 billion which is committed for two years at 5.5% could turn out to be not much of a hurdle. Even if they freeze dist, $1.14 at 5% yield, not impossible in a $60 to $80 oil env, that's $23 ETE and $43 WMB, we are back the original values. The delay in the deal has been a good thing so far, who knew. Tying it up in court might help the deal also. If we retest, I think unlikely, nothing is going to look good. I would even go for a 2.4x all equity deal. Warren probably doesn't want to give up that much equity but it could be a great combined co years from now, and he would be further ahead, and he does seem to be betting on the long term, LNG, exports....
The globe may have 3 billion bbs of storage, that's only 30 days of supply. The world is probably producing every barrel it can at the moment. We will need 1.5mmb/d more this year to meet demand. Supply is a function of price and at $40, there won't be enough to meet demand, maybe it's $60 or $80 for a while. The longer the price is depressed, the more of a run up we will get as we deplete storage and natural declines set in, a shale well declines 80% in the first year. A rebound is inevitable. Just like over supply was inevitable at $125 per barrel.
OPEC is irrelevant, whatever they decide won't have any effect on an oil price that needs to be higher to supply the globe. My guess is nothing will be negative and unlikely anything will be positive. By the end of next week market will be focusing on the supply/demand dynamics regardless of what OPEC decides. Suspect SA has a different strategy, they will make as much on downstream in the future and they want to be assured that fossil fuels are around for the long term, $100 invites other sources, $60 seems about right, maybe even $50 and the US can supply at those numbers, and the midstream cos continue to do well. We seem to forget that ETE and WMB are nat gas focused but it takes a oil drill activity as well which we will get at $60, or it could be $80. A buy opp today?
If you think merger is dead, easy decision, buy ETE and you make 50% in matter of months. Believe it goes through and make 20% with WMB and probably more in the long run with the merged co. Would like to know if Warren's thinking has changed.
A SA piece that I do somewhat think is correct. CHK is not the risk the market thought it was a few weeks ago, and the prospect of much higher prices by the end of the year, better for CHK and everyone. Buy WMB now and you win both ways, merger or not. Merger would be bumpier but with rising comm prices could look like a great deal with $70s oil next year. Or blowup, ETE and WMB would both do well. The $6 billion is still an issue but not insurmountable. Wouldn't want to play poker with Warren, although I think he has overplayed his hand at the moment, he's not going to win this issue in court. And WMB has played it well, deal could be killed and they get $500mm to a $1000mm.