Energy Transfer CFO’s departure unrelated to pending Williams deal, sources say
* Timing of departure news said to be unfortunate
* FTC review almost complete
Williams’ shareholder vote in late March at earliest
Energy Transfer Equity (NYSE:ETE) CFO Jamie Welch’s sudden departure was unrelated to its pending bid for Williams Companies (NYSE:WMB), said two sources familiar with the situation and a sector advisor.
On 5 February, Welch stepped down from his position and was replaced by Thomas Long, CFO of Energy Transfer Partners (NYSE:ETP). Energy Transfer subsequently issued an 8-K on 8 February, stating that the replacement was not based on “any disagreement with respect to any accounting or financial matter,” and the company was working to retain Welch as a consultant on the company’s LNG export project.
Since Welch’s departure was announced Friday after market close, Energy Transfer units have lost nearly 35% of their value. On Tuesday, the units gained 12.8% to close at USD 4.57 per unit.
The timing of the departure announcement was “unfortunate,” said the first source familiar. Although Williams shareholders may have been “spooked” by the CFO situation, the same source said it was not enough to dissuade them from pressing ahead with the deal.
The second source familiar said investors were reading too much into Welch’s departure.
Energy Transfer did not respond to requests for comment, while Welch could not be immediately reached for comment.
The second source familiar and advisor described Welch as the key orchestrator and driving force on the Williams deal.
Welch joined Energy Transfer from investment bank Credit Suisse in 2013. He began his business career as a project finance lawyer in Australia before working in New York and London. New CFO Long has been with the Energy Transfer family of companies since 2010 and is a CPA who has worked in US power and energy corporations since 1998.
Given the dramatic 82% decline in Energy Transfer’s valuation since the deal was announced, the company would want to renegotiate the Williams deal, despite the many challenges, this news service previously reported on 22 January. The second source familiar said at this point terms of the deal have not been discussed for re-evaluation.
At the same time as Welch’s departure, Energy Transfer was hit with renewed concerns over Williams’ exposure to Chesapeake Energy (NYSE: CHK), which sister publication Debtwire reported on Friday had retained a law firm to advise on debt restructuring.
For Williams shareholders, the USD 8 per share cash component of the deal remains “pretty attractive,” said the first source. In addition, a combination with Energy Transfer could lessen exposure to Chesapeake, because Williams would be joining a more diversified group of businesses, the first source familiar said.
Williams has around USD 1bn in annual earnings exposed to Chesapeake, said the first source familiar. In a worst-case scenario in which Chesapeake declares bankruptcy, looks to renegotiate contracts and those renegotiations are upheld, the outcome will be likely painful to Williams but not necessarily catastrophic, he said. The Chesapeake exposure represents less than a quarter of Williams’ annualized earnings based on its past four quarters.
Williams declined to comment.
A third source familiar with the situation agreed that the biggest concern for Williams is whether Chesapeake would decline to pay the higher rates in its contract with Williams when there is a surplus of cheaper capacity available in the present market.
The transaction is still subject to Williams’ shareholder vote, which has not been scheduled. The second source familiar said a shareholder vote has not been set yet as the parties wait to receive direction from the Federal Trade Commission’s review of the deal, which is understood to be nearly complete.
The first source familiar said the earliest Williams could hold its shareholder vote is at the end of March, but that it is likely to be held later.