Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to
remove any comments we feel do not benefit other readers. If you have a personal question about your subscription or need technical help, please
contact our customer service team. If you have any success stories to share with our analysts, they’re always happy
to hear them. Note that we may use your kind words in our promotional materials. Thank you.
Peter
ETE is now countersueing WMB for WMB sueing ETE and for trying to block the issuance of preferred shares: If I understand corrrectly, ETE is claiming that the latter and sueing ETE and Warren is tantamount to walking away from the merger agreement. I´m struggling to believe that I understood this correctly though. From my layman´s perspective ths looks simply too ridiculous. Can you explain that legal dispute and are you in a position to deliver an opinion on the outcome?
Igor Greenwald
I will have an update on this in this week’s Energy Strategist. The legal dispute goes back to the private placement ETE did over WMB’s objections protecting its own insiders from a future distribution cut. ( I covered it here: http://www.investingdaily.com/energy-strategist/articles/24882/energy-transfers-nuclear-option/ two months ago.) On the facts of the matter and the spirit if not the letter of the merger agreement, WMB has a good case, but the question is whether that will help them regain any leverage in last-minute maneuvering over merger terms. I still believe there’s a win/win solution out there if both parties are willing to find one, but do wonder whether the good will necessary to do so exists any longer.
How much of concern is WMB´s indebtedness? I read their debt load exceeds their market capitalisation. If that´s true, wouldn´t that be a good reason to hope the merger goes through (no matter whether on an all-equity or cash+equity basis)? In other words, wouldn´t that be a reason to be worried if they don´t merge?
Igor Greenwald
Their debt leverage is high even if you compare it to EBITDA rather than market cap, which of course is down a lot over the last year. Their solution before ETE came along with its bid was to take over the affiliated WPZ MLP, thereby retaining more of the aggregate cash flow. Excessive leverage has been very costly over the last year for midstream companies (see KMI) that had to cut payouts to protect their credit rating, but will be less important in a commodity price recovery. I think WMB’s leverage is fully discounted in the current price, but of course there’s no way to really know except in retrospect.
Stock Talk
Peter
ETE is now countersueing WMB for WMB sueing ETE and for trying to block the issuance of preferred shares: If I understand corrrectly, ETE is claiming that the latter and sueing ETE and Warren is tantamount to walking away from the merger agreement. I´m struggling to believe that I understood this correctly though. From my layman´s perspective ths looks simply too ridiculous. Can you explain that legal dispute and are you in a position to deliver an opinion on the outcome?
Igor Greenwald
I will have an update on this in this week’s Energy Strategist. The legal dispute goes back to the private placement ETE did over WMB’s objections protecting its own insiders from a future distribution cut. ( I covered it here: http://www.investingdaily.com/energy-strategist/articles/24882/energy-transfers-nuclear-option/ two months ago.) On the facts of the matter and the spirit if not the letter of the merger agreement, WMB has a good case, but the question is whether that will help them regain any leverage in last-minute maneuvering over merger terms. I still believe there’s a win/win solution out there if both parties are willing to find one, but do wonder whether the good will necessary to do so exists any longer.
You must be logged in to post to Stock Talk OR create an account
You must be logged in to post to Stock Talk OR create an account
Peter
How much of concern is WMB´s indebtedness? I read their debt load exceeds their market capitalisation. If that´s true, wouldn´t that be a good reason to hope the merger goes through (no matter whether on an all-equity or cash+equity basis)? In other words, wouldn´t that be a reason to be worried if they don´t merge?
Igor Greenwald
Their debt leverage is high even if you compare it to EBITDA rather than market cap, which of course is down a lot over the last year. Their solution before ETE came along with its bid was to take over the affiliated WPZ MLP, thereby retaining more of the aggregate cash flow. Excessive leverage has been very costly over the last year for midstream companies (see KMI) that had to cut payouts to protect their credit rating, but will be less important in a commodity price recovery. I think WMB’s leverage is fully discounted in the current price, but of course there’s no way to really know except in retrospect.
You must be logged in to post to Stock Talk OR create an account
You must be logged in to post to Stock Talk OR create an account
Add New Comments
You must be logged in to post to Stock Talk OR create an account