Pipeline rebuff could stir activist hornets’ nest

August 19, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Ignoring an approach from a pipeline rival could stir an activist hornets’ nest at Williams Companies. The $21 billion pipeline operator, fresh off a failed merger with rival Energy Transfer, chose not to respond to an offer from larger rival Enterprise Products Partners this summer, Reuters reported on Thursday. The rebuff all but invites two investors who joined a board exodus in June to lobby again to oust Chief Executive Alan Armstrong.

The value and precise timing of the Enterprise approach remain unclear. But the interest comes amid a period of upheaval at Williams, which agreed to be taken over by Energy Transfer last year. The would-be buyer got cold feet after oil prices crashed and walked away on a technicality in June.

Shortly afterwards, six of Williams’ 13 directors, including the chairman, quit the board after an attempt to topple Armstrong failed. Among the departures were two activists, Keith Meister of Corvex Management and Eric Mandelblatt of Soroban Capital. They held onto their stakes in the company and between them own almost 7 percent.

Armstrong, who has since revealed a new go-it-alone strategy for Williams, might have had good cause to ignore an opportunistic, possibly low-ball bid. Williams’ shares have rallied some 35 percent since early July amid a recovery in oil prices, presumably wiping out any premium the $55 billion Enterprise may have offered. Its new suitor’s stock, meanwhile, fell 8 percent, which may well limit its appetite to engage further.

Williams’ shares jumped nearly 8 percent on Thursday after the approach came to light, though, suggesting shareholders are at least excited by the prospect of Williams ceasing to be an independent company. Crucially, they have until next week to nominate new director candidates ahead of the company’s annual meeting towards the end of November. A more receptive board might stand a better chance of convincing Enterprise to return to the table.

Corvex has already urged Williams to revamp its board with a majority of new directors within a year. While it said in a recent regulatory filing it was no longer working with Soroban to push for management changes, the Enterprise revelations combined with the activists’ history with the current boss means it wouldn’t be a huge surprise if Armstrong ends up facing another fight for his own survival.

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