For Want of a Tax Opinion Nail, a Megadeal War Is Lost

The Delaware Court of Chancery denied The Williams Companies, Inc.'s (Williams) request for an order requiring Energy Transfer Equity, L.P. (ETE) to close a deal to acquire Williams valued at more than $30 billion after concluding that a contractual condition to closing—that ETE’s tax counsel furnish an opinion that the contribution of Williams’ assets to ETE should be treated as a tax-free exchange—had validly failed to occur. The Court concluded that the tax counsel “as of the time of trial, could not in good faith opine that tax authorities should treat the. . . exchange. . .as tax free under Section 721(a); and [that] because Williams has failed to demonstrate that [ETE] has materially breached its contractual obligation to undertake commercially reasonable efforts to receive such an opinion. . .[ETE] is contractually entitled to terminate the Merger Agreement, assuming [the tax counsel’s] opinion does not change before the end of the merger period. . .” The Court granted judgment in favor of ETE which Williams has appealed to the Delaware Supreme Court.

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