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Analyzing Synergies from the Energy Transfer–Williams Merger

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Oct. 2 2015, Published 3:08 p.m. ET

Synergies from the Energy Transfer–Williams Merger

The Energy Transfer Equity (ETE) and Williams Companies (WMB) merger is anticipated to generate over $2 billion of commercial synergies by 2020, investing over $5 billion of additional capital. This excludes the $400 million of cost savings expected from the implementation of ETE’s shared service model across merged assets.

These cost savings are expected to be accretive to Williams Partners’ (WPZ) distributions. WPZ constitutes 4.56% of the Global X MLP ETF (MLPA).

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Northeast region

Energy Transfer management has not clearly highlighted how the company will achieve these synergies and the timing for the synergies. This is could possibly be another reason for the fall in stock prices. We’ve discussed the possible reasons for the fall in Energy Transfer’s and Williams’ shares after the merger announcement in Part 4 of this series.

However, Energy Transfer stated that the majority of investment and synergies are expected in the Northeast United States. To an analyst’s question on the conference call about the timing and regions of investment, Jamie Welch, Energy Transfer Group CFO, replied, “There will be a lot in the Northeast. Because if you look at a lot of it, operational efficiencies between WPZ and Mackie’s existing ETP G&P footprint, on the liquids side at Mont Belvieu we’ve got the potential for fracs 5 and 6 and expansion with pumps of Lone Star Express that are relatively small dollars with tremendous returns.” About the timing, he said, “Timing for that capital, yes, is probably a 2017, late 2016, 2017.” G&P refers to Energy Transfer Partners’ (ETP) Gathering and Processing segment.

Apart from this, few other synergies are expected in the Gulf Coast/Texas, MidCon, and West/Rockies region, as illustrated in the above image. The synergies would come only after the transaction closes.

Energy Transfer–Williams merger transaction timeline

The transaction is expected to close in the first quarter of 2016. The transaction is subject to approval by Williams’ shareholders and other regulatory approvals, including those related to antitrust laws.

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