The messy merger highlights the fallout from the steep drop in the price of oil and natural gas. Consumers are benefiting from inexpensive gasoline, but the record-low prices are causing severe pain radiating from the Texas Panhandle to Wall Street.
The low prices combined with high levels of debt could push 175 global exploration and production companies – more than a third of the industry – into bankruptcy, according to a report by the consulting firm Deloitte. Oil giants like Royal Dutch Shell and Chevron have laid off workers as profits have plunged. On Wall Street, banks that made big loans to energy companies are bracing for big losses. This week, JPMorgan Chase increased its reserves for bad energy loans.
As the troubles in the energy industry broaden, the risks around Energy Transfer's Williams acquisition have increased and the company's financial picture continues to dim. In February, Energy Transfer replaced its chief financial officer, Jamie Welch, a former investment banker at Credit Suisse who helped structure the deal. On a conference call on Thursday, an analyst asked why Mr. Welch had left, and Mr. Warren said, "The decision was made by me that we needed to make a move and we did," without elaborating further.
Another looming problem: Under the terms of the deal, Energy Transfer has to pay $ 6 billion in cash to Williams as part of the cash-and-stock acquisition. To do that, it has to either raise additional debt or sell assets. With energy prices still slumping, neither option is particularly attractive. On top of that, there is also a risk that one of Williams's biggest customers, Chesapeake Energy, could file for bankruptcy.
Short of filing for bankruptcy itself, Energy Transfer is stuck buying Williams because of stringent deal terms, according to several people involved in the transaction. Williams shareholders, however, could still vote down the merger.
"From the minute they announced the deal, everything that they needed to go right for this deal to work hasn't. It's all gone the other way," said Keith C. Goddard, chief executive of the investment management firm Capital Advisors of Tulsa, Okla., which owns 220,000 shares of Williams. Mr. Goddard said he would vote no on the merger. "At what point do these directors say, 'We're not doing this deal'?"
It was two years ago when Energy Transfer's Mr. Warren set his plan to acquire Williams in motion. At the time, he was benefiting from America's shale revolution. As a middleman who moves what others drill out of the ground, Mr. Warren had, in short order, morphed his small pipeline company into an interstate giant through a series of bold developments and acquisitions. He appeared on the Forbes 400 billionaires list, worth about $ 7 billion at his peak.
His target, Williams, also had a colorful history. Started in Arkansas as a construction company in 1908, the company moved to Tulsa and began building pipelines to transport oil and gas. Its own risk-taking urges were tempered by a disastrous debt-laden foray into telecommunications in the 1990s.
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The company slowly recovered and narrowed its focus on pipelines. But in late 2013, it found itself in the cross hairs of a pair of activist hedge funds — Corvex Capital, a fund run by Keith Meister, a former protégé of the billionaire investor Carl C. Icahn, and Soroban Capital Partners, led by a former Goldman Sachs energy trader, Eric Mandelblatt.
The hedge funds had taken a stake in Williams worth a combined $ 2.5 billion, making them among its largest shareholders, and they were agitating for change, pointing to the company's lackluster stock price. After the hedge funds threatened a proxy battle, Williams caved, agreeing to add the two hedge fund executives to its board in 2014.
Last June, Mr. Warren made his move. Energy Transfer put an all-stock deal for $ 64 a share — valuing the company at around $ 48 billion — on the table. Williams's board turned it down, calling it inadequate. A few months later, Mr. Warren and Energy Transfer came back, offering $ 43.50 a share with a sweetener — $ 6 billion in cash.
In a close decision, the Williams board initially voted against the deal on Sept. 24, with the two sides splintering into two different dinner meetings to discuss their decisions further. Overnight, two defectors swung the board toward an eight-to-five vote in favor of the merger and an agreement was reached.
Among the dissenters was the company's chief executive, Alan S. Armstrong. Although Mr. Armstrong publicly threw his support behind the deal, there were clear signs inside the company that he was not happy.
"Certainly, as much as we may want to throw a pity party for ourselves, it's not going to do any good," Mr. Armstrong said to a group of Williams employees in a speech two days after the deal was announced, according to a company securities filing.
Mr. Armstrong does not yet have a specified role after the deal is completed and those close to him say he is likely to leave. Energy Transfer expects the deal to close in the second quarter, about a month later than analysts expected, as regulators continue to review the acquisition.
Despite its risks, some investors still want to see the merger happen.
"The deal, long term, is going to make sense," said Matthew Sallee, a portfolio manager and managing director at Tortoise Capital Advisors, a firm based in Leawood, Kan., that specializes in energy investments. "It's just hard to watch in the meantime."
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