Energy Transfer Equity LP (NYSE: ETE) said on April 18 its lawyers may not be able to deliver an important tax opinion for its takeover of peer Williams Cos. Inc. (NYSE: WMB), throwing the agreed $14 billion acquisition into doubt.

Energy Transfer rose 10% on the news, as investors bet that the company may now have a way to get out of a deal that looked increasingly unattractive as energy prices plunged. Williams shares fell 5%.

A tax opinion confirming that the acquisition qualifies as an exchange under section 721(a) of the U.S. tax code and would be tax free for Energy Transfer and Williams shareholders is a key provision of the merger agreement.

Energy Transfer said in a filing with the U.S. Securities and Exchange Commission that its law firm Latham & Watkins said that it would not be able to deliver such an opinion if the deal were to close today.

Energy Transfer said that Williams disagrees with this position on the tax issue. The companies are currently in talks over the impact that the tax issue will have on their ability to close the deal.

Williams has alleged that Energy Transfer is looking into ways to walk away from the tie-up even though the terms of the deal would not allow that. The companies have yet to schedule a vote of Williams' shareholders needed to ratify the deal.

Dallas billionaire and Energy Transfer CEO Kelcy Warren set his sights on Williams last year in order to transform his empire into one of the biggest pipeline networks in the world but the timing was poor. A prolonged drop in oil and gas prices has made the deal more difficult to finance and to justify to shareholders.

Energy Transfer would need to take on a heavy debt load to fund the $6 billion cash portion of the deal.

Since the takeover was announced, Energy Transfer has launched a controversial offering of preferred shares to its top shareholders, for which it is currently being sued by Williams. Energy Transfer has also fired its CFO and slashed projections for cost savings from the Williams deal.

The spread between the value of Williams shares and the implied value of Energy Transfer's cash and stock offer jumped from 26% to as much as 50%, before paring gains to around 38%. The move indicates increased doubt among investors as to whether the deal would be completed.

Representatives for Williams declined to comment. An Energy Transfer representative did not immediately respond to a request for comment.


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