What: Shares of Williams Companies Inc exploded higher Monday morning after news broke that the company rejected a $48 billion buyout offer from rival Energy Transfer Equity LP . While the proposed $64-a-share offer represented a 33% premium to Williams' closing price on Friday, the company said that the offer "significantly undervalues" the company and wouldn't deliver the value it expects to achieve on a stand-alone basis. That said, the offer is forcing the company to explore strategic alternatives, including a potential sale or merger. This suggests the company is open to a deal as long as it comes at a much higher price, which is why investors are bidding up the stock.
So what: Prior to the offer from Energy Transfer Equity, Williams had been pursuing a merger deal of its own, as it is in the process of acquiring all the units it didn't own of its MLP affiliate Williams Partners . It believes that the stock-for-unit deal will create significant long-term value for investors in both companies as it is expected to drive an industry-leading 10%-15% dividend growth rate through 2020.
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However, Energy Transfer Equity's offer is contingent on Williams dropping its deal for Williams Partners. That appears to be one of the sticking points, as this is a deal Williams doesn't want to abandon, which is why it plans to continue to move forward with the merger while it explores strategic alternatives.
Now what: There's no certainty that Williams Companies will find any of the alternatives appealing. Furthermore, it might have a tough time finding a better offer, as not only is the premium very generous, but the price tag north of $50 billion leaves few available buyers. It very much appears that Williams would rather grow on its own than sell out to a rival. Because of this, investors should invest in Williams on its own merits and not on the prospects of a quick profit via a buyout deal that might never materialize.
The article Williams Companies Inc's Stock Soars 25% on Buyout Offer originally appeared on Fool.com.
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