A high-profile but contentious merger deal between two oil pipeline giants finally seems to be close to resolution. And given the performance of the two stocks involved, hedge funds may have bet on the wrong horse.
The deal: Energy Transfer Equity’s $38 billion acquisition of Williams Cos. for stock and cash, initially proposed in September 2015.
Energy Transfer, however, has been trying to terminate the deal, while Williams wants it to go through. Both sides have accused the other of violating terms of their agreement.
Williams shareholders are scheduled to vote on the deal next week.
The two companies have been arguing their cases in court this week. According to published reports, Vice Chancellor Sam Glasscock III of Delaware’s Court of Chancery plans to issue a ruling on Friday.
If Glasscock says the transaction must go forward, Energy Transfer will be required to pay a big chunk of money to Williams if it wants to back out.
Of course, both sides could still reach some sort of settlement.
The stock market seems to believe, however, that the deal will be resolved in Energy Transfer’s favor. Shares of the Dallas company surged more than 17 percent on Tuesday and another 2 percent over the next two days.
Shares of Williams were up 4 percent on Thursday but down 3 percent for the week.
The stock is down about 50 percent since the deal was announced.
This is bad news for the many hedge fund firms that own Williams’s stock.
For more than a year, Williams has been the largest holding of New York activist hedge fund firm Corvex Management and one of its three largest positions over the past few quarters. Corvex, headed by Carl Icahn protégé Keith Meister, is also the third-largest shareholder of Williams.
For several years, the stock has also been one of the largest holdings of New York–based Soroban Capital Partners.
Other top shareholders at the end of the first quarter include Boston-based Highfields Capital Management, while Greenwich, Connecticut–based Lone Pine Capital was a major shareholder until year-end.
In 2014, Soroban and Corvex reached an agreement with Williams in which Eric Mandelblatt, who co-founded Soroban with Gaurav Kapadia, was appointed to the board of directors. Under the deal, Meister was also given significant say in appointing another director.
However, shares of Williams have roughly halved since the agreement with the two hedge funds was announced on February 25, 2014, no doubt in large part because energy prices in general collapsed.
Hedge fund dominance is barely visible among Energy Transfer Equity’s shareholders. In fact, one is hard-pressed to find any significant hedge fund presence in the stock.
Yes, Daniel Och’s OZ Management is the 14th-largest shareholder. However, ETE ranks as the 77th-largest U.S. stock holding for the New York firm.
This is too bad. The stock has more than doubled since its February 8, 2016, low, although it’s still down about 25 percent over the past year.
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