Wall Street reacted sharply as trading opened Monday, Feb. 8, following an announcement by Energy Transfer Equity LP (ETE) that it replaced its group CFO, Jamie Welch, with Thomas Long, who was CFO of Energy Transfer Partners LLC, Energy Transfer’s general partner.
The Dallas-based midstream player made the announcement Feb. 5, after the market closed.
By late Monday morning, ETE units had surrendered 25% of their value in very heavy trading. Energy Transfer Partners (ETP) units likewise were down more than 15% at mid morning. Meanwhile, shares of The Williams Cos. Inc. (WMB), which agreed to an acquisition deal with ETE last year, saw its shares down by 20% in late-morning trading. Williams announced in January it was “committed” to the $33 billion acquisition deal, although the shares of both firms have dropped precipitously in recent weeks along with those of other midstream players.
Analyst response to the announcement was negative. Ethan Bellamy, midstream analyst at Baird Equity Research, referred to the “disturbingly brief” Securities and Exchange Commission Form 8-K ETE filed to announce the change of senior-level officers. Bellamy in a report added the move is “likely to add increased selling pressure to the Energy Transfer family as the entities face material leverage constraints from the proposed acquisition of Williams Companies.”
Baird also downgraded ETE to neutral from outperform.
Christopher Sighinolfi with Jefferies LLC also found the filing “sparse on detail,” adding
“the 8-K leaves unaddressed the rationale for the change or what, if any, Mr. Welch's new role will be within Energy Transfer. With 2016 financing needs at several ETE operating subsidiaries, the merger with WMB progressing toward close this quarter, and the prospect of additional debt-rating downgrades at WPZ (Williams Partners LP), we find the change itself, its timing, and lack of 8-K detail both surprising and concerning.”
ETE did not respond to a Hart Energy request for comment.
Monday morning, ETE filed a second Form 8-K, stating “the partnership has initiated discussions with Mr. Welch towards a potential consulting arrangement related primarily to the continued development of the partnership’s LNG export project as well as other financing matters although, at this time, no agreements have been reached. In addition, in response to inquiries from various parties, the partnership affirms that the replacement of Mr. Welch as chief financial officer of the partnership was not based on any disagreement with respect to any accounting or financial matter involving the partnership or any of its affiliates.”
Paul Hart can be reached at pdhart@hartenergy.com.
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