The Delaware Supreme Court has affirmed the Delaware Court of Chancery’s ruling that Energy Transfer Equity L.P. (“ETE”) did not breach its agreement to merge with The Williams Companies, Inc. when ETE terminated the agreement on the grounds that its counsel was unwilling to deliver a tax opinion that was a condition to closing.
While the court’s decision has been eagerly anticipated, the larger impact of the ETE/Williams matter occurred back in May 2016 when the dispute became public: the dispute highlighted that tax-opinion closing conditions which are intended to protect the parties against tax risks could instead add to deal risks.
This alert memorandum briefly describes the facts in the case and the court’s decision, and then turns to a survey of what deal counterparties have been doing differently to mitigate “ETE/Williams risk”. We end with a menu of features deal counterparties should consider using in future deals. These features include:
— No tax opinion required
— Tax opinions prepared before signing
— Closing condition limited to change in tax law
— Obligation to accept opinion from other party’s counsel or an alternate counsel
— Obligation to restructure if necessary to obtain tax opinion
— Termination fee for termination because of inability to obtain opinion
Please click here to read the full alert memorandum.