Energy Transfer, LP v. The Williams Companies, Inc.

Summary

The Delaware Supreme Court affirmed the Court of Chancery's rulings arising from the failed merger between Energy Transfer and The Williams Companies. The Court held that Energy Transfer was not entitled to the $1.48 billion breakup fee, was required to reimburse Williams for the $410 million WPZ termination fee, and was liable for related attorney's fees.

Holdings

1. Williams did not withdraw, modify, or qualify the defined Company Board Recommendation within the meaning of the merger agreement. Public statements, litigation pleadings, and efforts to enforce the merger did not constitute an adverse recommendation change, so ETE was not entitled to the $1.48 billion termination fee.
2. Williams did not materially breach its reasonable-best-efforts or ordinary-course obligations through its executives' communications with a shareholder-litigant, its handling of dissenting directors, its public statements, or its litigation against ETE and Warren.
3. The Court of Chancery did not abuse its discretion by imposing monetary discovery sanctions rather than drawing an adverse inference that Williams breached the merger agreement.
4. Williams did not breach the merger agreement by refusing to consent to ETE's proposed public offering because the financing-cooperation obligation was subject to a reasonableness limitation and ETE's request was unreasonable given its adverse effect on Williams shareholders.
5. The Parent Disclosure Letter's $1 billion equity-issuance exception was ambiguous, and extrinsic evidence established that it applied only to the corresponding equity-issuance covenant, not to the other ordinary-course and interim-operating covenants. It therefore did not excuse ETE's preferred offering or its material breaches.
6. The Court of Chancery did not abuse its discretion by awarding Williams reasonable attorney's fees based on its contingent-fee arrangement or by awarding quarterly compounded interest under the merger agreement.

Questions Presented

1. Whether Williams adversely modified or withdrew the contractual Company Board Recommendation so as to entitle ETE to a $1.48 billion termination fee.
2. Whether Williams materially breached the merger agreement's reasonable-best-efforts, ordinary-course, or financing-cooperation obligations.
3. Whether spoliation by a Williams executive required an adverse inference that Williams breached the merger agreement.
4. Whether the $1 billion equity-issuance exception in ETE's Parent Disclosure Letter excused ETE's preferred offering and its resulting breaches of the merger agreement.
5. Whether the Court of Chancery abused its discretion by awarding Williams attorney's fees under a contingent-fee arrangement and by compounding interest quarterly.

Disposition

affirmed