Energy Transfer wins court backing on ditching merger

Energy Transfer Equity had the right to scuttle a merger with Williams Cos., an appeals court ruled, setting the stage for a battle between the two pipeline giants over a $1.5 billion breakup fee.

The Delaware Supreme Court’s ruling on Thursday means Energy Transfer doesn’t have to consummate its corporate marriage with Williams and it can press forward with claims its former takeover target owes a breakup fee over the abandoned $33 billion deal.

Dallas-based Energy Transfer didn’t violate the 2015 agreement to buy Williams for more than $43 per share by invoking a tax flaw or allowing buyer’s remorse to hinder efforts to rescue the combination, the state’s highest court said in a 4-1 ruling.

“ETE did not fail to disclose any facts known to it at the time the agreement was signed,” the court’s majority ruled. Instead, what changed was a tax theory that took into account ETE’s devalued partnership units, Justice James Vaughn said for the court’s majority.

Officials for Williams didn’t immediately return calls seeking comment on the ruling. Vicki Granado, an Energy Transfer spokeswoman, said the company was pleased with the ruling.

Energy Transfer’s attempt to reap a breakup fee in a deal that it found a way to cancel may be a stretch, said Larry Hamermesh, a Widener University professor who specializes in Delaware corporate law.

“It would really be surprising” that such a fee would be awarded given the facts surrounding the deal’s demise, he said.

The ruling is the latest twist in almost a year of litigation over what has become one of the energy industry’s most notorious failed deals. Neither company now wants to proceed with the merger because of the energy downturn.