May 24, 2017

The ETE-Williams Failed Deal

A reminder about how proper allocation of risk in deal terms affects litigation outcomes

Elizabeth Brandon

The Delaware Court of Chancery’s recent decision in The Williams Companies v. Energy Transfer Equity, L.P., C.A. Nos. 12168, 12337-VCG (Del. Ch. June 24, 2016), authorizing Dallas-based Energy Transfer Equity (ETE) to terminate its merger agreement with Tulsa-based Williams Companies—a deal initially valued at $38 billion before depressed oil prices caused the deal value to plummet—has caused many to question whether the ruling will have a chilling impact on deal certainty by allowing judicially sanctioned buyers’ remorse. The opinion, however, actually reinforces basic principles for deal lawyers and litigators: The merger agreement must clearly and unequivocally provide the bases for termination and the parties’ related rights. If closing preconditions are clearly outlined, the court will honor contractual terms and will not substitute its own judgment over the parties’ mutually agreed terms.

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