A Delaware judge ordered oil pipeline operator Energy Transfer LP to pay rival Williams Cos $410 million for abandoning their $33 billion merger, one of the largest transactions to fall victim to sinking oil prices.
In a 95-page decision on Wednesday, Vice Chancellor Sam Glasscock of Delaware Chancery Court said Energy Transfer owed the breakup fee for breaching the September 2015 merger agreement by issuing preferred securities five months later.
Energy Transfer offered the securities only to insiders, in what one Williams director called a "sweetheart deal" for them and co-founder Kelcy Warren, Energy Transfer's billionaire chairman and at the time chief executive.
Glasscock wrote that while Dallas-based Energy Transfer had validly terminated the merger, it was contractually obligated to pay the breakup fee and thus must "pay the piper."
The judge also said Williams must cover Energy Transfer's costs to issue a subpoena and seek sanctions after Williams Chief Executive Alan Armstrong deleted a Gmail account, which Energy Transfer claimed he used to discuss scuttling the merger.
In an emailed statement on Thursday, Energy Transfer said it was "extremely disappointed" in the decision and evaluating its legal options.
Williams, based in Tulsa, Oklahoma, said it was "obviously pleased" it could recoup the $410 million breakup fee, plus interest and legal costs.
The merger collapsed in the spring of 2016 after oil and gas prices tumbled, hurting shares of both companies and prompting investor concern the merged company would have too much debt.
Following a trial, Glasscock in June 2016 let Energy Transfer pull out of the merger after its tax advisers were unable to certify that the transaction would be tax-free to investors as originally envisioned.
Glasscock subsequently ruled in December 2017 that Energy Transfer was not entitled to a $1.5 billion breakup fee from Williams, saying it would amount to a "windfall" for walking away.
The case is Williams Cos v Energy Transfer LP, Delaware Chancery Court, Nos. 12168, 12337.
(Reporting by Jonathan Stempel; Editing by Dan Grebler and Chizu Nomiyama)