A Painful Acquisition

An acquisition has been underway for nearly a year now. Kelcy Warren’s Energy Transfer Equity is developing a deal to acquire the Williams Companies. The deal cost Energy Transfer about 38 million dollars, through a combination of shares and cash. The reason that Warner pursued this deal is because he wanted to put this finishing touches on his empire.

Warren has created 71 thousand miles of pipeline that caries oil and gas. The Williams company is a similar company with a vast network of pipeline as well. The merger seemed like a natural occurrence and made sense to many shareholders. However, there is still some disagreement and doubt.

The New York Times published an article explaining how the Chief Executive Officer of the Williams Companies is privately against the merger and will most likely leave the company if the deal ends up actually going through.

The acquisition has already started to show some issues. The value of both companies has dropped by 60 percent and has only continued to plummet as Energy Transfer’s earnings reports were released. These numbers are only becoming worse with the crisis that has hit the energy industry. Prices are at an all time low, which means that many energy exploration and production companies will be unable to pay off high loans. It is expected that at least a third of the industry will need to file for bankruptcy.

That pain extends further than just the energy industry. Many of the companies took out very large loans that they were sure they would be able to easily pay off. This will not be the case and loan providers like JP Morgan Chase have been forced to increase their reserves. Even Chevron and Royal Dutch Shell have begun to lay employees off.

However, there are many shareholders who are staying positive and want the deal to go through. The article shared several examples of how the deal made sense moving forward and this just might be an awkward faze because of the timing with current issues in the energy sector. This timing is something that firms like Madison Street Capital keep their eyes on.

Madison Street Capital is an investment banking firm that is in several locations around the world. In the United States they are headquartered in Chicago, Illinois. The firm provides services in the following areas: Asset management industry focus, business valuation, corporate advisory, financial opinions and valuation for financial reporting. The firm is involved in a variety of sectors, including, telecommunication, oil and gas, agriculture, manufacturing and consumer retail. They are best know for their history of success with a wide variety of mergers and acquisitions they have completed.

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