Tuesday, June 23, 2015

This Is Not An Investment Site. Do Not Make Any Investment Or Financial Decisions Based On Anything You Read Here -- June 23, 2015

This headline and the first few paragraphs of this article over at Seeking Alpha should give us pause to think.

All that talk about ETE buying WMB.

Some data points.

Market caps:
  • ETP: $27 billion
  • ETE: $35 billion
  • WMB: $44 billion
  • WPZ: $29 billion
Both WMB and ETP have $20 billion in debt, and neither has any cash (to speak of).
ETP has been working on the deal for six months.

WMB has hired an outside consulting firm to look at strategic options.

Here's one: WMB buys ETP.

This is not the first time this has happened in the history of free market capitalism in the United States.

The hunted buying the hunter. The prey buying the predator.

There was a very, very "famous" example of a small company about ready to be gobbled up by a larger company some years ago; the smaller company ended up buying the larger company, so it's not out of the realm of possibilities. In this case, ETP may be smaller (market cap) than WMB but they are pretty much both in the same ball park.

Another possibility: a merger of "equals." This is a way both boards / companies "save face," but behind the green door, the CEOs agree that in a year or two, one will become dominant, and the company will be known by one or the other. Chevron-Texaco (CVX) comes to mind. I've long forgotten the specifics, but I always considered it a merger (and the stock symbol suggests the same -- the stock symbol was changed to "reflect" both companies) but clearly analysts think of this company as Chevron. I grew up with Texaco and my heart "lies" with Texaco, but I have to agree: it's more Chevron than Texaco.

Exxon-Mobil? Same song, different verse. Does anyone call this merger ExxonMobil any more? I loved Pegasus, but I think Exxon grabbed the brass ring in this case.

COP.

Are there non-energy examples? I assume so, but will have to rely on readers to help me out. The only example I can think of, I suppose, is when SBC bought ATT, which, I think, was a series of deals before we have what we have today.

My hunch: a year from now, ETP/ETE and WMB/WPZ will look much differently as corporate entities than they do today. But one guy is going to be running both.

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