DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☑                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

ENERGY TRANSFER PARTNERS, L.P.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

September 11, 2018

Dear Common Unitholders of Energy Transfer Partners, L.P.:

On August 1, 2018, Energy Transfer Equity, L.P. (“ETE”), Energy Transfer Partners, L.P. (“ETP”) and certain of their affiliates entered into a merger agreement (as may be amended from time to time, the “merger agreement”), pursuant to which Streamline Merger Sub, LLC, a wholly owned subsidiary of ETE, will merge with and into ETP, with ETP continuing as the surviving entity and a subsidiary of ETE (the “merger”). The board of directors (the “ETP Board”) of Energy Transfer Partners, L.L.C. (“ETP Managing GP”), the general partner of Energy Transfer Partners GP, L.P., the general partner of ETP, approved and agreed to submit the merger agreement and the merger to a vote of ETP common unitholders following the recommendation of the conflicts committee of the ETP Board (the “ETP Conflicts Committee”). The ETP Conflicts Committee has determined that the merger agreement and the merger are advisable and fair and reasonable to ETP, and in the best interests of ETP and the unaffiliated ETP common unitholders and the ETP Board has determined that the form, terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger and the ETP LPA amendment (as defined below), are advisable, fair and reasonable to and in the best interests of ETP and its common unitholders, and in each case, has approved the merger agreement and the merger. Under the terms of the merger agreement, subject to certain adjustments, holders of common units representing limited partner interests in ETP (“ETP common units”) will receive, for each ETP common unit held, 1.28 common units representing limited partner interests in ETE (“ETE common units”).

The merger consideration to be received by holders of ETP common units is valued at $23.59 per unit based on the closing price of ETE common units as of August 1, 2018, the last trading day before the public announcement of the merger, representing an approximate 11% premium to the closing price of ETP common units of $21.21 on August 1, 2018, a 15% premium to the volume-weighted average closing price of ETP common units for the ten trading days ended August 1, 2018 and a 19% premium to the volume-weighted average closing price of ETP common units for the 30 trading days ended August 1, 2018. The merger consideration is valued at $22.41 per unit based on the closing price of ETE common units as of September 6, 2018, the most recent trading day prior to the date of this proxy statement/prospectus, representing a 0.1% discount to the closing price of ETP common units of $22.44 on September 6, 2018, and a 0.5% discount to the volume-weighted average closing price of ETP common units for the five trading days ended September 6, 2018.

Immediately following the completion of the merger, it is expected that ETP common unitholders will own approximately 56% of the outstanding ETE common units, based on the number of ETE common units outstanding, on a fully diluted basis, as of September 6, 2018. The common units of ETE and ETP are traded on the New York Stock Exchange (“NYSE”) under the symbols “ETE” and “ETP,” respectively. Following the consummation of the merger, it is expected that ETE will change its name to “Energy Transfer LP” and apply to continue the listing of its common units on the NYSE under the new symbol “ET.” It is also expected that ETP will change its name to “Energy Transfer Operating, L.P.” and that the Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in ETP and the Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in ETP will continue to trade on the NYSE under the symbols “ETPprC” and “ETPprD,” respectively.

ETP is holding a special meeting of its common unitholders at the Hilton Dallas Park Cities Hotel, 5954 Luther Lane, Dallas, Texas 75225, on October 18, 2018 at 10:00 a.m., local time, to obtain the vote of its common unitholders to adopt the merger agreement and the transactions contemplated thereby. Your vote is very important regardless of the number of ETP common units you own. The merger cannot be completed unless the holders of at least a majority of the outstanding ETP common


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units, other than the ETP common units owned by ETE and its affiliates, and the holders of at least a majority of the outstanding ETP common units vote for the adoption of the merger agreement and the transactions contemplated thereby at the special meeting. The ETP Board recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting. Pursuant to the merger agreement, ETE, which directly or indirectly owns all of the incentive distribution rights and the general partner interest in ETP, as well as approximately 2.4% of the ETP common units outstanding as of September 10, 2018, has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof. Whether or not you expect to attend the special meeting in person, we urge you to submit your proxy as promptly as possible through one of the delivery methods described in the accompanying proxy statement/prospectus.

In addition, we urge you to read carefully the accompanying proxy statement/prospectus (and the documents incorporated by reference into the accompanying proxy statement/prospectus), which includes important information about the merger agreement, the proposed merger and the special meeting.  Please pay particular attention to the section titled “Risk Factors” beginning on page 30 of the accompanying proxy statement/prospectus.

On behalf of the ETP Board, we thank you for your continued support.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying proxy statement/prospectus or determined that the accompanying proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated September 11, 2018 and is first being mailed to the common unitholders of ETP on or about September 11, 2018.

 

Sincerely,
LOGO
Kelcy L. Warren

Chairman & Chief Executive Officer of

Energy Transfer Partners, L.L.C., on behalf of

Energy Transfer Partners, L.P.


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LOGO

8111 Westchester Drive, Suite 600

Dallas, Texas 75225

NOTICE OF SPECIAL MEETING OF COMMON UNITHOLDERS

TO BE HELD ON OCTOBER 18, 2018

To the Common Unitholders of Energy Transfer Partners, L.P.:

Notice is hereby given that a special meeting of common unitholders of Energy Transfer Partners, L.P. (“ETP”), will be held at the Hilton Dallas Park Cities Hotel, 5954 Luther Lane, Dallas, Texas 75225, on October 18, 2018 at 10:00 a.m., local time, solely for the following purposes:

 

   

Merger proposal: To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of August 1, 2018 (as may be amended from time to time, the “merger agreement”), by and among Energy Transfer Equity, L.P. (“ETE”), LE GP, LLC, the general partner of ETE (“ETE GP”), Streamline Merger Sub, LLC, a wholly owned subsidiary of ETE (“ETE Merger Sub”), ETP and Energy Transfer Partners, L.L.C. (“ETP Managing GP”), as the general partner of Energy Transfer Partners GP, L.P. (“ETP GP”), the general partner of ETP, a copy of which is attached as Annex A to the proxy statement/prospectus accompanying this notice, and the transactions contemplated thereby, including the merger of ETE Merger Sub with and into ETP, with ETP continuing as the surviving entity and a subsidiary of ETE (the “merger”); and

 

   

Adjournment proposal: To consider and vote on a proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and the transactions contemplated thereby at the time of the special meeting.

These items of business, including the merger agreement and the merger, are described in detail in the accompanying proxy statement/prospectus. The board of directors of ETP Managing GP (the “ETP Board”) has determined that the form, terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger and the ETP LPA amendment (as defined below), are advisable, fair and reasonable to and in the best interests of ETP and its common unitholders and the conflicts committee of the ETP Board (the “ETP Conflicts Committee”) has determined that the merger agreement and the merger are advisable and fair and reasonable to ETP, and in the best interests of ETP and the unaffiliated ETP common unitholders, and in each case, has approved the merger agreement and the merger. Therefore, the ETP Board, based on the recommendation of the ETP Conflicts Committee, recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of such adoption.

Only common unitholders of record as of the close of business on September 10, 2018 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournment or postponement thereof. A list of common unitholders entitled to vote at the special meeting will be available in our offices located at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225 during regular business hours for a period of 10 days before the special meeting, and at the place of the special meeting during the special meeting. Pursuant to the merger agreement, ETE has agreed to vote all of the common units representing limited partner interests in ETP (“ETP common units”) owned beneficially or of record by ETE or its subsidiaries in favor of the adoption of the merger agreement and the merger and the approval of any actions required in furtherance thereof, which includes, if necessary, the adjournment proposal. As of September 10, 2018, ETE and its subsidiaries collectively held 27,535,127 ETP common units, representing approximately 2.4% of the ETP common units entitled to vote at the special meeting.


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Adoption of the merger agreement and the transactions contemplated thereby by the ETP common unitholders is a condition to the consummation of the merger and requires the affirmative vote of holders of at least a majority of the outstanding ETP common units, other than ETP common units held by ETE and its affiliates, and the affirmative vote of holders of at least a majority of the outstanding ETP common units. Therefore, your vote is very important. Your failure to vote your ETP common units will have the same effect as a vote “AGAINST” the adoption of the merger agreement and the transactions contemplated thereby.

 

By order of the board of directors,
LOGO
James M. Wright, Jr.
General Counsel

Dallas, Texas

September 11, 2018

YOUR VOTE IS IMPORTANT!

WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE (1) BY TELEPHONE, (2) VIA THE INTERNET OR (3) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE PREPAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before the special meeting. If your ETP common units are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished to you by such record holder.

We urge you to read the accompanying proxy statement/prospectus, including all documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes carefully and in their entirety. If you have any questions concerning the merger, the adjournment vote, the special meeting or the accompanying proxy statement/prospectus or would like additional copies of the accompanying proxy statement/prospectus or need help voting your ETP common units, please contact ETP’s proxy solicitor:

MacKenzie Partners, Inc.

1407 Broadway – 27th Floor

New York, New York 10018

Toll free: (800) 322-2885

Collect: (212) 929-5500


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ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about ETE and ETP from other documents filed with the Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this proxy statement/prospectus.

Documents incorporated by reference are available to you without charge upon written or oral request. You can obtain any of these documents by requesting them in writing or by telephone from ETE or ETP at: 8111 Westchester Drive, Suite 600, Dallas, TX 75225, Attention: Investor Relations, Email: InvestorRelations@energytransfer.com.

To receive timely delivery of the requested documents in advance of the special meeting, you should make your request no later than October 12, 2018.

For a more detailed description of the information incorporated by reference in this proxy statement/prospectus and how you may obtain it, see “Where You Can Find More Information.”

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the SEC by ETE (File No. 333-226831), constitutes a prospectus of ETE under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the common units representing limited partner interests in ETE (“ETE common units”) to be issued pursuant to the merger agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of ETP common unitholders, at which ETP common unitholders will be asked to consider and vote on, among other matters, a proposal to adopt the merger agreement and the transactions contemplated thereby.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated September 11, 2018. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to ETP common unitholders nor the issuance by ETE of ETE common units pursuant to the merger agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

The information concerning ETE contained in this proxy statement/prospectus or incorporated by reference has been provided by ETE, and the information concerning ETP contained in this proxy statement/prospectus or incorporated by reference has been provided by ETP.


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QUESTIONS AND ANSWERS

     1  

SUMMARY

     10  

The Parties

     10  

The Merger

     10  

Merger Consideration

     10  

Pre-Closing Transactions

     11  

Treatment of Restricted Units, Restricted Phantom Units and ETP Equity Plans

     11  

Treatment of General Partner Interest

     12  

Treatment of Other Classes of ETP Units

     12  

Treatment of ETP Common Units Owned by ETE and its Subsidiaries

     12  

The Special Meeting; Common Units Entitled to Vote; Required Vote

     12  

Recommendation of the ETP Board; Reasons for the Merger

     13  

Opinion of the Financial Advisor to the ETP Conflicts Committee

     13  

No ETE Unitholder Approval Required

     14  

Directors and Executive Officers of ETE After the Merger

     14  

Ownership of ETE After the Merger

     14  

Interests of Directors and Executive Officers of ETP in the Merger

     14  

Interests of ETE in the Merger

     15  

Risk Factors Relating to the Merger and Ownership of ETE Common Units

     15  

Material U.S. Federal Income Tax Consequences of the Merger

     17  

Accounting Treatment of the Merger

     18  

Listing of ETE Common Units; Delisting and Deregistration of ETP Common Units

     18  

No Dissenters’ Rights or Appraisal Rights

     18  

Conditions to Consummation of the Merger

     18  

Regulatory Approvals and Clearances Required for the Merger

     20  

No Solicitation by ETP of Alternative Proposals

     20  

Change in ETP Board Recommendation

     21  

Termination of the Merger Agreement

     22  

Expenses

     23  

Termination Fee

     23  

Comparison of Rights of ETE Common Unitholders and ETP Common Unitholders

     23  

Organizational Structure Prior to and Following the Merger

     24  

Summary Historical Consolidated Financial Data of ETE

     26  

Summary Historical Consolidated Financial Data of ETP

     27  

Unaudited Comparative Per Unit Information

     27  

Comparative Unit Prices and Distributions

     29  

RISK FACTORS

     30  

Risk Factors Relating to the Merger

     30  

Tax Risks Related to Owning Common Units in ETE Following the Merger

     38  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     39  

THE PARTIES

     42  

THE SPECIAL MEETING

     43  

THE MERGER

     48  

Effect of the Merger

     48  

Pre-Closing Transactions

     49  

Background of the Merger

     50  

Recommendation of the ETP Board; Reasons for the Merger

     61  

Opinion of the Financial Advisor to the ETP Conflicts Committee

     65  

Reasons of the ETE Conflicts Committee and the ETE Board for the Merger

     77  

 

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Unaudited Financial Projections of ETE, ETP and the Combined Partnership

     78  

Interests of Directors and Executive Officers of ETP in the Merger

     83  

Interests of ETE in the Merger

     86  

No Dissenters’ Rights or Appraisal Rights

     86  

No ETE Unitholder Approval Required

     86  

Accounting Treatment of the Merger

     86  

Regulatory Approvals and Clearances Required for the Merger

     86  

Directors and Executive Officers of ETE After the Merger

     87  

Listing of ETE Common Units; Delisting and Deregistration of ETP Common Units

     87  

Ownership of ETE After the Merger

     88  

Restrictions on Sales of ETE Common Units Received in the Merger

     88  

PROPOSAL 1: THE MERGER AGREEMENT

     89  

The Merger

     89  

Effective Time; Closing

     89  

Conditions to Consummation of the Merger

     90  

ETP Common Unitholder Approval

     93  

No Solicitation by ETP of Alternative Proposals

     94  

Change in ETP Board Recommendation

     95  

Merger Consideration

     97  

Treatment of Restricted Units, Restricted Phantom Units and ETP Equity Plans

     97  

Treatment of General Partner Interest

     97  

Treatment of Other Classes of ETP Units

     97  

Treatment of ETP Common Units Owned by ETE and its Subsidiaries

     98  

Adjustments to Prevent Dilution

     98  

Withholding

     98  

Distributions

     98  

Regulatory Matters

     98  

Termination of the Merger Agreement

     98  

Termination Fee

     100  

Expenses

     100  

Conduct of Business Pending the Consummation of the Merger

     100  

Indemnification; Directors’ and Officers’ Insurance

     104  

Financing Matters

     105  

ETE LPA Amendment

     105  

Amendment and Waiver

     106  

Remedies; Specific Performance

     107  

Representations and Warranties

     107  

Distributions

     108  

ETE’s Obligation to Vote ETP Units

     108  

Additional Agreements

     108  

ENERGY TRANSFER EQUITY, L.P. UNAUDITED PRO FORMA FINANCIAL INFORMATION

     109  

Pro Forma Adjustments

     113  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     114  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF ETE COMMON UNIT OWNERSHIP

     119  

DESCRIPTION OF ETE COMMON UNITS

     137  

Where ETE Common Units Are Traded

     137  

Quarterly Distributions

     137  

Transfer Agent and Registrar

     137  

Summary of ETE Partnership Agreement

     137  

 

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COMPARISON OF RIGHTS OF ETE COMMON UNITHOLDERS AND ETP COMMON UNITHOLDERS

     138  

PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING

     163  

LEGAL MATTERS

     164  

EXPERTS

     164  

WHERE YOU CAN FIND MORE INFORMATION

     165  

 

ANNEX A:

   AGREEMENT AND PLAN OF MERGER      A-1  

ANNEX B:

   OPINION OF BARCLAYS CAPITAL INC.      B-1  

ANNEX C:

   FORM OF AMENDMENT NO. 4 TO FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ENERGY TRANSFER PARTNERS, L.P.      C-1  

ANNEX D:

   FORM OF AMENDMENT NO. 6 TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ENERGY TRANSFER EQUITY, L.P.      D-1  

 

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QUESTIONS AND ANSWERS

Set forth below are questions that you, as a common unitholder of ETP, may have regarding the merger proposal, the adjournment proposal and the special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety, including the merger agreement, which is attached as Annex A to this proxy statement/prospectus, and the documents incorporated by reference into this proxy statement/prospectus, because this section may not provide all of the information that is important to you with respect to the merger and the special meeting. You may obtain a list of the documents incorporated by reference into this proxy statement/prospectus in the section titled “Where You Can Find More Information.”

Q: Why am I receiving this proxy statement/prospectus?

A: ETE, ETP and certain of their affiliates have agreed to a merger, pursuant to which ETE Merger Sub, a wholly owned subsidiary of ETE, will merge with and into ETP. ETP will continue its existence as the surviving entity and a subsidiary of ETE, but the ETP common units will no longer be publicly traded. In order to complete the merger, ETP common unitholders must vote to adopt the merger agreement and the transactions contemplated thereby. ETP is holding a special meeting of its common unitholders to obtain such unitholder approval.

In connection with the merger, ETE will issue ETE common units as the consideration to be paid to holders of ETP common units. This document is being delivered to you as both a proxy statement of ETP and a prospectus of ETE in connection with the merger. It is the proxy statement by which the ETP Board is soliciting proxies from you to vote on the adoption of the merger agreement and the transactions contemplated thereby, including the merger, at the ETP special meeting or at any adjournment or postponement thereof. It is also the prospectus by which ETE will issue ETE common units to you in connection with the merger.

Q: What will happen in the merger?

A: Pursuant to the merger agreement, at the effective time of the merger (the “effective time”), ETE Merger Sub will merge with and into ETP. ETP will be the surviving limited partnership in the merger and will be a subsidiary of ETE, but the ETP common units will no longer be publicly traded. Following the consummation of the merger, it is expected that ETE will change its name to “Energy Transfer LP” and apply to continue the listing of its common units on the NYSE under the new symbol “ET.” At the closing of the merger, ETP will change its name to “Energy Transfer Operating, L.P.”

Q: What will I receive in the merger?

A: If the merger is completed, each ETP common unit issued and outstanding as of immediately prior to the effective time (other than ETP common units held by ETE or its subsidiaries) will be converted automatically into the right to receive 1.28 (the “exchange ratio”) ETE common units (the “merger consideration”). ETP common unitholders will not receive any fractional ETE common units in the merger. Instead, with respect to each holder of ETP common units whose ETP common units are converted pursuant to the merger agreement who otherwise would have received a fraction of an ETE common unit will be entitled to receive a whole ETE common unit. Based on the closing price of ETE common units on the New York Stock Exchange (the “NYSE”) on August 1, 2018, the last trading day prior to the public announcement of the merger, the merger consideration represented approximately $23.59 in value for each ETP common unit. Based on the closing price of $17.51 for ETE common units on the NYSE on September 6, 2018, the most recent practicable trading day prior to the date of this proxy statement/prospectus, the merger consideration represented approximately $22.41 in value for each ETP common unit. The market price of ETE common units will fluctuate prior to the merger, and the market price of ETE common units when received by ETP common unitholders after the merger is completed could be greater or less than the current market price of ETE common units. See “Risk Factors.”

 

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Q: What will happen to my ETP restricted units and restricted phantom units in the merger?

A: If the merger is completed, each unvested award of restricted units and restricted phantom units outstanding under any ETP equity plan (“ETP restricted units” or “ETP restricted phantom units,” as applicable) will, as of the effective time, be converted into the right to receive a comparable restricted equity award with respect to ETE common units on the same terms and conditions as were applicable to the corresponding award of ETP (including the right to receive distribution equivalents with respect to such award), except that the number of ETE common units covered by such comparable award will be equal to the number of ETP common units covered by the corresponding award of ETP multiplied by the exchange ratio, rounded up to the nearest whole unit.

Q: What will happen to the other series and classes of ETP units in the merger?

A: The merger agreement provides that (i) at the effective time, the Class E Units representing limited partner interests in ETP (the “Class E Units”), Class G Units representing limited partner interests in ETP (the “Class G Units”), Class K units representing limited partner interests in ETP (the “Class K Units”), Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in ETP (the “Series A Preferred Units”), Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in ETP (the “Series B Preferred Units”), Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in ETP (the “Series C Preferred Units”) and Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in ETP (the “Series D Preferred Units” and, together with the Series A Preferred Units, the Series B Preferred Units and the Series C Preferred Units, the “Preferred Units”), all of which have been issued and are outstanding immediately prior to the effective time, will be unchanged and remain outstanding, (ii) immediately prior to the effective time, the outstanding Class I Units representing limited partner interests in ETP (the “Class I Units”) and Class J Units representing limited partner interests in ETP (the “Class J Units”), all of which have been issued and are outstanding immediately prior to the effective time, will be cancelled, and (iii) immediately prior to the effective time, all of the incentive distribution rights in ETP issued and outstanding immediately prior to the effective time will be converted into 1,168,205,710 ETP common units. The Series C Preferred Units and the Series D Preferred Units will continue to be listed on the NYSE following the completion of the merger. The general partner interest in ETP will be converted into a non-economic general partner interest in exchange for the issuance of 18,448,341 ETP common units.

Q: What will the ownership of ETE GP and its affiliates be in ETE following the completion of the merger?

A: As a condition to the completion of the merger, ETE has agreed to issue to ETE GP a new class of limited partner interests, the Class A units (the “ETE Class A Units”). The number of ETE Class A Units to be issued to ETE GP will allow ETE GP and its affiliates to retain their current voting interest in ETE following the completion of the merger. Currently, ETE GP and its affiliates have an approximate 31% voting interest in ETE and, if the ETE Class A Units were not issued to ETE GP, ETE GP and its affiliates would have an approximate 13.5% voting interest in ETE, based on the 1,166,403,685 ETP common units and 1,158,206,626 ETE common units outstanding as of August 1, 2018 and the number of ETE common units owned by ETE GP and its affiliates as of August 1, 2018. As a result of the issuance of the ETE Class A Units, following the completion of the merger, the voting interest in ETE represented by the ETE common units held by ETE GP and its affiliates and the voting interest in ETE represented by the ETE Class A Units held by ETE GP would give ETE GP and its affiliates an aggregate voting interest of approximately 31%. Please read “The Merger—Effect of the Merger” beginning on page 48 of this proxy statement/prospectus.

Q: What are the ETE Class A Units and how will they impact holders of ETE common units following the merger?

A: Pursuant to the ETE partnership agreement, ETE GP has a preemptive right to acquire, in connection with any issuance of common units by ETE (including the issuance of ETE common units pursuant to the

 

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merger), additional ETE common units in order to allow ETE GP to maintain the percentage interest of ETE GP and its affiliates of ETE’s outstanding common units prior to any such issuance. As of August 1, 2018, ETE GP and its affiliates owned approximately 31% of ETE’s outstanding common units. Absent the exercise of this preemptive right, the percentage ownership of ETE GP and its affiliates would be diluted to approximately 13.5% as a result of the issuance of the merger consideration to the former ETP common unitholders in connection with the closing of the merger. ETE GP has agreed to waive its preemptive right in connection with the issuance of ETE common units pursuant to the merger, and ETE has agreed to issue to ETE GP a newly created class of limited partner interests in ETE, the ETE Class A Units, that will be entitled to vote together with the ETE common units, as a single class, on any matter for which the holders of ETE common units are entitled to vote, except as required by law. The number of ETE Class A Units issued to ETE GP will be calculated to ensure that the ETE common units and the ETE Class A Units held by ETE GP and its affiliates immediately following the merger represent the same relative voting power as the ETE common units held by ETE GP and its affiliates represented prior to the merger. Following the completion of the merger, for so long as Kelcy Warren is an officer or a director of ETE GP, upon the issuance by ETE of additional ETE common units or any securities that have voting rights that are pari passu with the ETE common units, ETE will issue to the holder of ETE Class A Units a number of additional ETE Class A Units such that the holder maintains a voting interest in ETE that is identical to its voting interest in ETE prior to such issuance.

The ETE Class A Units will not be entitled to distributions and otherwise have no economic attributes, except that the ETE Class A Units in the aggregate will be entitled to an aggregate $100 distribution prior and in preference to any distribution of assets to the holders of any other classes or series of securities of ETE upon any liquidation, dissolution or winding up of ETE. The ETE Class A Units are not convertible into, or exchangeable for, ETE common units. In addition to the other voting rights of the ETE Class A Units, without the approval of 66 2/3% of the ETE Class A Units, ETE may not take any action that disproportionately or materially adversely affects the rights, preferences or privileges of the ETE Class A Units or amend the terms of the ETE Class A Units. Without the prior approval of a conflicts committee of the board of directors of ETE GP (the “ETE Board”), the ETE Class A Units may not be transferred to any person or entity, other than to Kelcy Warren, Ray Davis or to any trust, family partnership or family limited liability company the sole beneficiaries, partners or members of which are Kelcy Warren, Ray Davis or their respective relatives. Please read “The Merger—Effect of the Merger” beginning on page 48 of this proxy statement/prospectus and “Risk Factors—ETE common unitholders have limited voting rights and are not entitled to elect ETE’s general partner or the directors of ETE’s general partner” beginning on page 33 of this proxy statement/prospectus.

Q: What happens if the merger is not completed?

A: If the merger agreement and the transactions contemplated thereby are not adopted by ETP common unitholders holding at least a majority of the outstanding ETP common units, other than ETP common units held by ETE and its affiliates (collectively, the “unaffiliated ETP common unitholders”), and by the ETP common unitholders holding at least a majority of the outstanding ETP common units, or if the merger is not completed for any other reason, you will not receive any form of consideration for your ETP common units in connection with the merger. Instead, ETP will remain an independent publicly traded limited partnership and the ETP common units will continue to be listed and traded on the NYSE. If the merger agreement is terminated under specified circumstances, including if ETP common unitholder approval is not obtained, ETP will be required to pay all of the reasonably documented out-of-pocket expenses incurred by ETE and its affiliates in connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. In addition, if the merger agreement is terminated under specified circumstances, including due to an adverse recommendation change having occurred, ETP will be required to pay ETE a termination fee of $750.0 million, less any expenses previously paid by ETP to ETE. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by ETE or its affiliates in connection with the merger. Please read “Proposal 1: The Merger Agreement—Expenses” and “—Termination Fee” beginning on page 100 of this proxy statement/prospectus.

 

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Q: Will I continue to receive future distributions on my ETP common units?

A: Before completion of the merger, ETP expects to continue to pay its regular quarterly cash distribution on the ETP common units, which was $0.565 per ETP common unit for the quarter ended June 30, 2018. However, ETE and ETP will coordinate the timing of distribution declarations leading up to completion of the merger so that, in any quarter, a holder of ETP common units will either receive distributions in respect of its ETP common units or distributions in respect of the ETE common units that such holder will receive in connection with the merger as part of the merger consideration (but will not receive distributions from both ETP and ETE in any single quarter). Receipt of the regular quarterly distribution will not reduce the merger consideration you receive. Upon completion of the merger, you will be entitled only to distributions on any ETE common units you receive as merger consideration and hold through the applicable distribution record date. While ETE provides no assurances as to the level or payment of any future distributions on the ETE common units, and ETE reserves to itself the sole right to determine the amount of its distributions each quarter, with respect to the quarter ended June 30, 2018, ETE paid a cash distribution of $0.305 per ETE common unit on August 20, 2018 to holders of record as of the close of business on August 6, 2018.

The current annualized distribution rate for each ETP common unit is $2.26 (based on the quarterly distribution rate of $0.565 for each ETP common unit that was paid with respect to the quarter ended June 30, 2018). Based on the exchange ratio, the annualized distribution rate for each ETP common unit exchanged for 1.28 ETE common units would be approximately $1.5616 (based on the quarterly distribution rate of $0.305 per ETE common unit paid with respect to the quarter ended June 30, 2018). Accordingly, based on the distribution rates for the quarter ended June 30, 2018, and the exchange ratio, an ETP common unitholder would initially receive approximately 31% less in quarterly cash distributions on an annualized basis after giving effect to the merger. For additional information, please read “Comparative Unit Prices and Distributions.”

Q: What am I being asked to vote on?

A: ETP’s common unitholders are being asked to vote on the following proposals:

 

   

Merger proposal: To adopt the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus, and the transactions contemplated thereby, including the merger; and

 

   

Adjournment proposal: To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

The approval of the merger proposal by ETP common unitholders holding at least a majority of the outstanding ETP common units and at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders are conditions to the obligations of ETE and ETP to complete the merger. The adjournment proposal is not a condition to the obligations of ETE or ETP to complete the merger.

Q: Does the ETP Board recommend that ETP common unitholders adopt the merger agreement and the transactions contemplated thereby?

A: Yes. The ETP Board has determined that the form, terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger and the ETP LPA amendment (as defined below), are advisable, fair and reasonable to and in the best interests of ETP and its common unitholders and the ETP Conflicts Committee has determined that the merger agreement and the merger are advisable and fair and reasonable to ETP, and in the best interests of ETP and the unaffiliated ETP common unitholders, and in each case, has approved the merger agreement and the merger. Therefore, the ETP Board, based on the recommendation of the ETP Conflicts Committee, recommends that you vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting. See “The Merger—Recommendation

 

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of the ETP Board; Reasons for the Merger” beginning on page 61 of this proxy statement/prospectus. In considering the recommendation of the ETP Board with respect to the merger agreement and the transactions contemplated thereby, including the merger, you should be aware that directors and executive officers of ETP are parties to agreements or participants in other arrangements that give them interests in the merger that may be different from, or in addition to, your interests as a unitholder of ETP. You should consider these interests in voting on the merger proposal. These different interests are described under “The Merger—Interests of Directors and Executive Officers of ETP in the Merger” beginning on page 83 of this proxy statement/prospectus.

Q: What unitholder vote is required for the approval of each proposal?

A: The following are the vote requirements for the ETP proposals:

 

   

Merger proposal. The merger agreement requires the affirmative vote of the holders of at least a majority of the outstanding ETP common units and the affirmative vote of holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders. Accordingly, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as votes “AGAINST” the merger proposal.

 

   

Adjournment proposal. If a quorum is present at the special meeting, the affirmative vote of the holders of at least a majority of the outstanding ETP common units. If a quorum is not present at the meeting, the affirmative vote of holders of a majority of the outstanding ETP common units, represented thereat either in person or by proxy, will be required to approve the adjournment proposal. Accordingly, if a quorum is present, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as votes “AGAINST” the adjournment proposal. If a quorum is not present, abstentions and broker non-votes will have the same effect as votes “AGAINST” the adjournment proposal, but an ETP common unitholder’s failure to vote will have no effect on the adoption of the adjournment proposal.

Pursuant to the merger agreement, ETE, which directly or indirectly owns all of the incentive distribution rights and the general partner interest in ETP, has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the transactions contemplated thereby, including the merger, and the approval of any actions required in furtherance thereof, which includes, if necessary, the adjournment proposal. As of September 10, 2018, ETE and its subsidiaries collectively held 27,535,127 ETP common units, representing approximately 2.4% of the ETP common units entitled to vote at the special meeting.

Q: What constitutes a quorum for the special meeting?

A: The holders of at least a majority of the outstanding ETP common units must be represented in person or by proxy at the special meeting in order to constitute a quorum.

Q: When is this proxy statement/prospectus being mailed?

A: This proxy statement/prospectus and the proxy card are first being sent to ETP common unitholders on or about September 11, 2018.

Q: Who is entitled to vote at the special meeting?

A: Holders of ETP common units outstanding as of the close of business on September 10, 2018 (the “record date”) are entitled to one vote per unit at the special meeting.

As of the record date, there were 1,167,186,967 ETP common units outstanding, all of which are entitled to vote at the special meeting.

 

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Q: When and where is the special meeting?

A: The special meeting will be held at the Hilton Dallas Park Cities Hotel, 5954 Luther Lane, Dallas, Texas 75225, on October 18, 2018, at 10:00 a.m., local time.

Q: How do I vote my ETP common units at the special meeting?

A: There are four ways you may cast your vote. You may vote:

 

   

In Person. If you are an ETP common unitholder of record, you may vote in person at the special meeting. ETP common units held by a bank, broker or other nominee may be voted in person by you only if you obtain a legal proxy from the record holder (which is your bank, broker or other nominee) giving you the right to vote the units;

 

   

Via the Internet. You may cause your ETP common units to be voted at the special meeting by submitting your proxy electronically via the Internet by accessing the Internet address provided on each proxy card (if you are an ETP common unitholder of record) or vote instruction card (if your ETP common units are held by a bank, broker or other nominee);

 

   

By Telephone. You may cause your ETP common units to be voted at the special meeting by submitting your proxy by using the toll-free telephone number listed on the enclosed proxy card (if you are an ETP common unitholder of record) or vote instruction card (if your ETP common units are held by a bank, broker or other nominee); or

 

   

By Mail. You may cause your ETP common units to be voted at the special meeting by submitting your proxy by filling out, signing and dating the enclosed proxy card (if you are an ETP common unitholder of record) or vote instruction card (if your ETP common units are held by a bank, broker or other nominee) and returning it by mail in the prepaid envelope provided.

Even if you plan to attend the special meeting in person, you are encouraged to submit your proxy as described above so that your vote will be counted if you later decide not to attend the special meeting.

If your ETP common units are held by a bank, broker or other nominee, also known as holding units in “street name,” you should receive instructions from the bank, broker or other nominee that you must follow in order to have your ETP common units voted. Please review such instructions to determine whether you will be able to submit your proxy via Internet or by telephone. The deadline for submitting your proxy by telephone or electronically through the Internet is 11:59 p.m., Eastern Time, on October 17, 2018 (the “telephone/internet deadline”). However, if the special meeting is adjourned to solicit additional proxies, the deadline may be extended.

Q: If my ETP common units are held in “street name” by my broker, will my broker automatically vote my ETP common units for me?

A: No. If your ETP common units are held in an account at a broker or through another nominee, you must instruct the broker or other nominee on how to vote your ETP common units by following the instructions that the broker or other nominee provides to you with these materials. Most brokers offer the ability for unitholders to submit voting instructions by mail by completing a voting instruction card, by telephone and via the Internet.

If you do not provide voting instructions to your broker, your ETP common units will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is referred to in this proxy statement/prospectus and in general as a broker non-vote. In these cases, the broker can register your ETP common units as being present at the special meeting for purposes of determining a quorum, but will not be able to vote on those matters for which specific authorization is required. Under the current rules of the NYSE, brokers do not have discretionary authority to vote on any of the proposals, at the special meeting, including the merger proposal. A broker non-vote will have the same effect as a vote “AGAINST” the merger proposal and the adjournment proposal.

 

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Q: How will my ETP common units be represented at the special meeting?

A: If you submit your proxy by telephone, the Internet website or by signing and returning your proxy card, the officers named in your proxy card will vote your ETP common units in the manner you requested if you correctly submitted your proxy. If you sign your proxy card and return it without indicating how you would like to vote your ETP common units, your proxy will be voted as the ETP Board recommends, which is:

 

   

Merger proposal: “FOR” the adoption of the merger agreement and the transactions contemplated thereby, including the merger; and

 

   

Adjournment proposal: “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Q: Who may attend the special meeting?

A: ETP common unitholders (or their authorized representatives) and ETP’s invited guests may attend the special meeting. All attendees at the special meeting should be prepared to present government-issued photo identification (such as a driver’s license or passport) for admittance.

Q: Is my vote important?

A: Yes, your vote is very important. If you do not submit a proxy or vote in person at the special meeting, it will be more difficult for ETP to obtain the necessary quorum to hold the special meeting. In addition, an abstention or your failure to submit a proxy or to vote in person will have the same effect as a vote “AGAINST” the adoption of the merger agreement and the transactions contemplated thereby, including the merger. If you hold your ETP common units through a bank, broker or other nominee, your bank, broker or other nominee will not be able to cast a vote on such adoption without instructions from you. The ETP Board, based on the recommendation of the ETP Conflicts Committee, recommends that ETP common unitholders vote “FOR” the merger proposal.

Q: Can I revoke my proxy or change my voting instructions?

A: Yes. If you are an ETP common unitholder of record, you may revoke or change your proxy at any time before the telephone/internet deadline or before the polls close at the special meeting by:

 

   

sending a signed, written notice to Energy Transfer Partners, L.P. at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, Attention: Corporate Secretary, that bears a date later than the date of the proxy and is received prior to the special meeting and states that you revoke your proxy;

 

   

submitting a valid proxy by telephone or internet that bears a date later than the date of the proxy, but no later than the telephone/internet deadline, and is received prior to the special meeting; or

 

   

attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your ETP common units through a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee in order to revoke your proxy or change your voting instructions.

Q: What happens if I sell my ETP common units after the record date but before the special meeting?

A: The record date for the special meeting is earlier than the date of the special meeting and earlier than the date that the merger is expected to be completed. If you sell or otherwise transfer your ETP common units after the record date but before the date of the special meeting, you will retain your right to vote at the special meeting. However, you will not have the right to receive the merger consideration to be received by ETP’s common unitholders in the merger. In order to receive the merger consideration, you must hold your ETP common units through completion of the merger.

 

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Q: What does it mean if I receive more than one proxy card or vote instruction card?

A: Your receipt of more than one proxy card or vote instruction card may mean that you have multiple accounts with ETP’s transfer agent or with a bank, brokerage firm or other nominee. If voting by mail, please sign and return all proxy cards or vote instruction cards to ensure that all of your ETP common units are voted. Each proxy card or vote instruction card represents a distinct number of units and it is the only means by which those particular units may be voted by proxy.

Q: Is completion of the merger subject to any conditions?

A: Yes. In addition to the adoption of the merger agreement by the holders of at least a majority of the outstanding ETP common units and at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders, completion of the merger requires the receipt of the necessary governmental clearances, the issuance by ETE of the ETE Class A Units to ETE GP and the satisfaction or, to the extent permitted by applicable law, waiver of the other conditions specified in the merger agreement.

Q: When do you expect to complete the merger?

A: ETE and ETP are working towards completing the merger promptly. ETE and ETP currently expect to complete the merger shortly following the conclusion of the special meeting, subject to receipt of the ETP common unitholder approval, regulatory approvals and clearances and other usual and customary closing conditions; however, no assurance can be given as to when, or if, the merger will occur.

Q: What are the expected U.S. federal income tax consequences to an ETP unitholder as a result of the transactions contemplated by the merger agreement?

A: No gain or loss should be recognized by a holder of ETP common units solely as a result of the receipt of the merger consideration, other than (i) the difference between the deemed assumption by ETE of such ETP common unitholder’s share of any ETP liabilities that are treated as part of a “disguised sale” under Section 707 of the Internal Revenue Code of 1986, as amended (the “Code”), and any basis allocable to the portion of such ETP common unitholder’s ETP common units deemed sold as part of the “disguised sale” and (ii) any net decrease in such ETP common unitholder’s share of partnership liabilities pursuant to Section 752 of the Code (as adjusted for any nonrecourse liabilities taken into account as part of a “disguised sale”) in excess of such ETP common unitholder’s remaining adjusted tax basis. The amount and effect of any gain that may be recognized by holders of ETP common units will depend on such unitholder’s particular situation, including the ability of such unitholder to utilize any suspended passive losses.

Further, while we generally do not expect the ETP common unitholders to be subject to withholding obligations as a result of the transactions contemplated by the merger agreement, an ETP common unitholder whose ETE common units are deemed to be sold to fulfill its withholding obligations should recognize gain equal to the excess of the fair market value of the ETE common units which are deemed to be sold over the ETP common unitholder’s adjusted tax basis in such ETE common units.

For additional information, please read “Material U.S. Federal Income Tax Consequences of the Merger—Tax Consequences of the Merger to ETP and ETP Common Unitholders” and “Risk Factors—Risk Factors Relating to the Merger.”

Q: What are the expected U.S. federal income tax consequences for an ETP common unitholder of the ownership of ETE common units after the merger is completed?

A: Each ETP common unitholder who becomes a holder of ETE common units as a result of the merger will, as is the case for existing ETE common unitholders, be allocated such unitholder’s distributive share of ETE’s income, gains, losses, deductions and credits. In addition to U.S. federal income taxes, such a holder will

 

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be subject to other taxes, including state and local income taxes, unincorporated business taxes, and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which ETE conducts business or owns property following the merger, or in which the unitholder is a resident. Please read “Material U.S. Federal Income Tax Consequences of ETE Common Unit Ownership.”

Q: How many Schedules K-1 will I receive for 2018 if I am an ETP common unitholder?

A: If you are a holder of ETP common units, you will receive two Schedules K-1, one from ETP, which will describe your share of ETP’s income, gain, loss and deduction for the portion of the tax year that you held ETP common units prior to the effective time, and one from ETE, which will describe your share of ETE’s income, gain, loss and deduction for the portion of the tax year you held ETE common units following the effective time.

ETP expects to furnish a Schedule K-1 to each ETP common unitholder within 90 days of the end of the calendar year in which the closing occurs, and ETE expects to furnish a Schedule K-1 to each ETE common unitholder within 90 days of the closing of ETE’s taxable year on December 31, 2018.

Q: What do I need to do now?

A: Carefully read and consider the information contained in and incorporated by reference into this proxy statement/prospectus, including its annexes. Then, please submit your proxy or vote your ETP common units in accordance with the instructions described above.

If you hold ETP common units through a bank, broker or other nominee, please instruct your bank, broker or nominee to vote your common units by following the instructions that the bank, broker or nominee provides to you with these materials.

Q: Should I send in my unit certificates now?

A: No. ETP common unitholders should not send in their unit certificates at this time. After completion of the merger, ETE’s exchange agent will send you a letter of transmittal and instructions for exchanging your ETP common units for the merger consideration.

Q: Are holders of ETP common units entitled to dissenters’ rights or appraisal rights?

A: No. Neither dissenters’ rights nor appraisal rights are available in connection with the merger under the Delaware Revised Uniform Limited Partnership Act (the “Delaware LP Act”), the merger agreement or the Fourth Amended and Restated Agreement of Limited Partnership of Energy Transfer Partners, L.P., as amended (the “ETP partnership agreement”).

Q: Whom should I call with questions?

A: ETP common unitholders who have questions about the merger or the special meeting, or desire additional copies of this proxy statement/prospectus or additional proxy cards or voting instruction forms should contact MacKenzie Partners, Inc., ETP’s proxy solicitor, at:

MacKenzie Partners, Inc.

1407 Broadway – 27th Floor

New York, New York 10018

Toll free: (800) 322-2885

Collect: (212) 929-5500

 

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SUMMARY

This summary highlights selected information from this proxy statement/prospectus. You are urged to read carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the special meeting. See “Where You Can Find More Information.” Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.

The Parties (See page 42)

Energy Transfer Equity, L.P. (“ETE”) is a Delaware limited partnership with common units traded on the NYSE under the symbol “ETE.” ETE’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP, Sunoco LP, a Delaware limited partnership (“Sunoco”), and USA Compression Partners, LP, a Delaware limited partnership (“USAC”), each of which is a publicly traded master limited partnership engaged in diversified energy-related services, and ETE’s ownership of Lake Charles LNG Company, LLC, a Delaware limited liability company. ETE’s primary cash requirements are for distributions to its partners, general and administrative expenses, debt service requirements and at ETE’s election, capital contributions to ETP and Sunoco in respect of ETE’s general partner interests in ETP and Sunoco, respectively. ETE is managed by its general partner, LE GP, LLC (“ETE GP”), a Delaware limited liability company. Streamline Merger Sub, LLC (“ETE Merger Sub”) is a Delaware limited liability company and a wholly owned subsidiary of ETE. The address of ETE’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

Energy Transfer Partners, L.P. (“ETP”) is a Delaware limited partnership with common units traded on the NYSE under the symbol “ETP.” ETP is engaged in the midstream transportation and storage of natural gas, natural gas liquids (“NGLs”), refined products and crude oil, and terminalling services and acquisition and marketing activities, as well as NGL storage and fractionation services. ETP is managed by its general partner, Energy Transfer Partners GP, L.P. (“ETP GP”), and ETP GP is managed by its general partner, Energy Transfer Partners, L.L.C. (“ETP Managing GP”). ETP Managing GP is a wholly owned subsidiary of ETE. The address of ETP’s, ETP GP’s and ETP Managing GP’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

The Merger (See page 48)

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for the merger of ETE Merger Sub with and into ETP (the “merger”). ETP will survive the merger and become a subsidiary of ETE, but the ETP common units will no longer be publicly traded. Following the consummation of the merger, it is expected that ETE will change its name to “Energy Transfer LP” and apply to continue the listing of its common units on the NYSE under the new symbol “ET.” It is also expected that ETP will change its name to “Energy Transfer Operating, L.P.” and that the Series C Preferred Units and the Series D Preferred Units in ETP will continue to trade on the NYSE under the symbols “ETPprC” and “ETPprD,” respectively.

Merger Consideration (See page 97)

The merger agreement provides that, at the effective time, each ETP common unit issued and outstanding as of immediately prior to the effective time, other than ETP common units held by ETE or its subsidiaries, will be converted into the right to receive 1.28 ETE common units.



 

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Pre-Closing Transactions (See page 90)

Subject to the conditions to the merger being satisfied or waived (other than conditions that by their nature are to be satisfied at closing, but subject to the satisfaction or waiver of those conditions), ETE, ETP Managing GP and ETP will, and will cause their respective affiliates to, cause the following transactions (collectively, the “pre-closing transactions”) to occur immediately prior to the effective time in the order set forth below:

 

   

ETE will contribute 2,263,158 common units representing limited partner interests in Sunoco (“Sunoco common units”) to ETP in exchange for 2,874,275 ETP common units;

 

   

ETP Managing GP will contribute 100% of the limited liability company interests in Sunoco GP LLC, the sole general partner of Sunoco and the holder of the incentive distribution rights in Sunoco (“Sunoco GP”), to ETP in exchange for 42,812,389 ETP common units;

 

   

ETP Managing GP will contribute 12,466,912 common units representing limited partner interests in USAC (“USAC common units”) and 100% of the limited liability company interests in USA Compression GP, LLC, the general partner of USAC (“USA Compression GP”), to ETP in exchange for 16,134,903 ETP common units;

 

   

ETE will contribute (i) its 100% limited liability company interest in Lake Charles LNG Company, LLC and (ii) its 60% limited liability company interest in each of Energy Transfer LNG Export, LLC, ET Crude Oil Terminals, LLC and ETC Illinois LLC (collectively, the “Lake Charles LNG Interests”) to ETP in exchange for 37,557,815 ETP common units;

 

   

ETE and ETP Managing GP will cause the conversion of the incentive distribution rights in ETP into, or cause ETP to purchase such incentive distribution rights in exchange for, 1,168,205,710 ETP common units;

 

   

ETE and ETP Managing GP will cause the cancellation of the Class I Units and Class J Units in ETP;

 

   

ETP Managing GP will cause the conversion of the approximate 1.0% economic general partner interest in ETP to a non-economic general partner interest in ETP (such interest, prior to and after the conversion, the “ETP GP Interest”) and cause ETP to issue 18,448,341 ETP common units to ETP GP; and

 

   

in connection with the actions contemplated in the fifth, sixth and seventh bullets above, the ETP partnership agreement will be amended (such amendment, the “ETP LPA amendment”) as set forth in the ETP LPA amendment attached as Annex C to this proxy statement/prospectus.

The ETP common units issued in connection with the pre-closing transactions will be issued after the record date for the special meeting and therefore will not be entitled to vote at the special meeting.

Treatment of Restricted Units, Restricted Phantom Units and ETP Equity Plans (See page 97)

Restricted Units and Restricted Phantom Units. At the effective time, each unvested award of ETP restricted units or restricted phantom units awarded under any ETP equity plan will, by virtue of the merger and without any action on the part of the holder thereof, cease to relate to or represent a right to receive ETP common units and will be converted into the right to receive a comparable restricted equity award with respect to ETE common units on the same terms and conditions as were applicable to the corresponding award of ETP (including the right to receive distribution equivalents with respect to such award), except that the number of ETE common units covered by each such comparable award will be equal to the number of ETP common units subject to the corresponding award of ETP multiplied by the exchange ratio, rounded up to the nearest whole unit.

ETP Equity Plans. At the effective time, ETE will assume the obligations of ETP under the ETP equity plans and will assume such plans for purposes of employing such plans to make grants of equity-based awards relating to ETE common units following the closing of the merger.



 

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Treatment of General Partner Interest (See page 97)

The merger agreement provides that, at the effective time, the ETP GP Interest, which shall have been converted into a non-economic general partner interest and 18,448,341 ETP common units immediately prior to the effective time, will be unchanged and remain outstanding.

Treatment of Other Classes of ETP Units (See page 97)

The merger agreement provides that, (i) at the effective time, each Class E Unit, Class G Unit, Class K Unit, Series A Preferred Unit, Series B Preferred Unit, Series C Preferred Unit and Series D Preferred Unit of ETP issued and outstanding immediately prior to the effective time will be unchanged and remain outstanding, (ii) immediately prior to the effective time as part of the pre-closing transactions, each Class I Unit and Class J Unit issued and outstanding at such time will be cancelled for no consideration, and (iii) immediately prior to the effective time as part of the pre-closing transactions, all of the incentive distribution rights in ETP issued and outstanding at such time will be converted into 1,168,205,710 ETP common units. The Series C Preferred Units and the Series D Preferred Units will continue to be listed on the NYSE under the symbols “ETPprC” and “ETPprD,” respectively, following the completion of the merger.

Treatment of ETP Common Units Owned by ETE and its Subsidiaries (See page 98)

The merger agreement provides that, at the effective time, the ETP common units owned by ETE and its subsidiaries and issued and outstanding immediately prior to the effective time (including the ETP common units issued to ETE or any of its subsidiaries in connection with the pre-closing transactions) will be unchanged and remain outstanding.

The Special Meeting; Common Units Entitled to Vote; Required Vote (See page 43)

Meeting. The special meeting will be held at the Hilton Dallas Park Cities Hotel, 5954 Luther Lane, Dallas, Texas 75225, on October 18, 2018, at 10:00 a.m., local time. At the special meeting, ETP common unitholders will be asked to vote on the following proposals:

 

   

Merger proposal: To adopt the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus, and the transactions contemplated thereby, including the merger; and

 

   

Adjournment proposal: To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Record Date. Only ETP common unitholders of record at the close of business on September 10, 2018 will be entitled to receive notice of and to vote at the special meeting. As of the close of business on the record date of September 10, 2018, there were 1,167,186,967 ETP common units outstanding and entitled to vote at the meeting (including 30,681,980 ETP common units held by ETE and its affiliates). Each holder of ETP common units is entitled to one vote for each common unit owned as of the record date.

Required Vote. To adopt the merger agreement and the transactions contemplated thereby, the holders of at least a majority of the outstanding ETP common units and at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders must vote in favor of such adoption. ETP cannot complete the merger unless its common unitholders adopt the merger agreement and the transactions contemplated thereby. Because approval is based on the affirmative vote of at least a majority of the outstanding ETP common units (with and without ETP common units held by ETE and its affiliates), an ETP common unitholder’s failure to vote, an abstention from voting or the failure of an ETP common unitholder who holds his or her units in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee (a “broker non-vote”) will have the same effect as a vote “AGAINST” adoption of the merger proposal.



 

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If a quorum is present at the special meeting, to approve the adjournment of the meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting, holders of at least a majority of the outstanding ETP common units must vote in favor of the adjournment proposal. Therefore, if a quorum is present at the meeting, an ETP common unitholder’s failure to vote, abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the adjournment proposal. If a quorum is not present at the special meeting, to approve the adjournment of the meeting, holders of at least a majority of the outstanding ETP common units represented thereat either in person or by proxy must vote in favor of the adjournment proposal. Therefore, if a quorum is not present, abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the adjournment proposal, but an ETP common unitholder’s failure to vote will have no effect on the outcome of the adjournment proposal. In addition, the ETP partnership agreement allows ETP GP to also adjourn the meeting from time to time without the approval of ETP common unitholders.

Common Unit Ownership of and Voting by ETP’s and ETE’s Directors, Executive Officers and Affiliates. As of September 10, 2018, ETP’s directors and executive officers and their affiliates (excluding ETE and its subsidiaries) beneficially owned and had the right to vote 2,719,759 ETP common units at the special meeting, which represent approximately 0.2% of the ETP common units entitled to vote at the special meeting. Additionally, ETE’s directors and executive officers and their affiliates (including ETE and its subsidiaries) beneficially owned and had the right to vote 30,681,980 ETP common units at the special meeting, which represent approximately 2.6% of the ETP common units entitled to vote at the special meeting. It is expected that ETP’s and ETE’s directors and executive officers will vote their ETP common units “FOR” the adoption of the merger agreement and the transactions contemplated thereby, including the merger, although none of them have entered into any agreement requiring them to do so. Additionally, under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the adoption of the merger agreement and the transactions contemplated thereby, including the merger, and the approval of any actions required in furtherance thereof.

Recommendation of the ETP Board; Reasons for the Merger (See page 61)

The ETP Board, based on the recommendation of the ETP Conflicts Committee, recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby, including the merger.

In the course of reaching their decisions to approve the merger agreement and the transactions contemplated by the merger agreement, the ETP Conflicts Committee and the ETP Board considered a number of factors in their deliberations. For a more complete discussion of these factors, see “The Merger—Recommendation of the ETP Board; Reasons for the Merger.”

Opinion of the Financial Advisor to the ETP Conflicts Committee (See page 65)

In connection with the proposed transaction, the ETP Conflicts Committee received, on August 1, 2018, an oral opinion from Barclays Capital Inc. (“Barclays”), which was subsequently confirmed in writing, as to the fairness, as of the date of the opinion and based upon and subject to the qualifications, limitations and assumptions stated therein, from a financial point of view, to the unaffiliated ETP common unitholders, of the exchange ratio to be offered to such unaffiliated ETP common unitholders in the merger.

The full text of Barclays’ written opinion, which is attached to this proxy statement/prospectus as Annex B, sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully and in its entirety. Barclays’ opinion was provided for the information of the ETP



 

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Conflicts Committee in connection with its evaluation of the exchange ratio to be offered to unaffiliated ETP common unitholders from a financial point of view and did not address any other aspects or implications of the proposed transaction. Barclays expressed no view as to, and its opinion does not in any manner address, the underlying business decision to proceed with or effect the proposed transaction, the likelihood of consummation of the proposed transaction or the relative merits of the proposed transaction as compared to any other transaction or business strategy in which ETP might engage. In addition, Barclays expressed no view as to, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the proposed transaction, or any class of such persons, relative to the exchange ratio to be offered to the unaffiliated ETP common unitholders in the proposed transaction or otherwise. In addition, Barclays assumed that the issuance of the ETE Class A Units will be effected, but expressed no view as to the fairness, from a financial point of view, as to such issuance. The summary of Barclays’ opinion provided in this proxy statement/prospectus is qualified in its entirety by reference to the full opinion. Barclays’ opinion is not intended to be and does not constitute a recommendation to any unaffiliated ETP common unitholder as to how such unaffiliated ETP common unitholder should vote or act with respect to the proposed transaction or any other matter.

See “The Merger—Opinion of the Financial Advisor to the ETP Conflicts Committee” beginning on page 65.

No ETE Unitholder Approval Required (See page 86)

ETE unitholders are not required to adopt the merger agreement or approve the merger or the issuance of ETE common units or ETE Class A Units in connection with the merger.

Directors and Executive Officers of ETE After the Merger (See page 87)

ETE expects that the directors and executive officers of ETE GP immediately prior to the merger will continue in their existing management roles of ETE GP after the merger, except that (i) Kelcy L. Warren, Chairman and Chief Executive Officer of ETP and Chairman of ETE, is expected to become the Chairman and Chief Executive Officer of ETE, (ii) John W. McReynolds, President of ETE, is expected to become a Special Advisor of ETE, (iii) Marshall S. (Mackie) McCrea, III, Group Chief Operating Officer and Chief Commercial Officer of ETE, is expected to become the President and Chief Commercial Officer of ETE and (iv) Thomas E. Long, Group Chief Financial Officer of ETE, is expected to become Executive Vice President and Chief Financial Officer of ETE. Thomas P. Mason, Executive Vice President and General Counsel of ETE is expected to continue in the same role.

Ownership of ETE After the Merger (See page 88)

ETE will issue approximately 1,458,755,000 ETE common units to former ETP common unitholders pursuant to the merger agreement and approximately 647,080,000 ETE Class A Units to ETE GP. Based on the number of ETE common units outstanding as of the date of this proxy statement/prospectus, immediately following the completion of the merger, ETE expects to have approximately 2,616,961,000 common units outstanding. ETP common unitholders are therefore expected to hold approximately 56% of the aggregate number of ETE common units outstanding immediately after the merger. Holders of ETE common units (similar to holders of ETP common units) are not entitled to elect ETE’s general partner or the directors of the ETE Board and have only limited voting rights on matters affecting ETE’s business. Further, holders of ETE common units and ETE Class  A Units will generally vote together, as a single class, on any matter on which such ETE unitholders are entitled to vote.

Interests of Directors and Executive Officers of ETP in the Merger (See page 83)

ETP’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of ETP common unitholders generally. The members of the ETP Board were aware of and



 

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considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to ETP’s unitholders that the merger agreement be adopted.

These interests include:

 

   

Certain members of the ETP Board are also members of the ETE Board and are executives of ETE and/or ETP. In addition, all members of the ETP Board were appointed by ETE, as the sole member of ETP Managing GP.

 

   

Certain executive officers of ETP are also executive officers of ETE and the executive officers are expected generally to continue in their existing roles following the completion of the merger.

 

   

As with all holders of ETP restricted units and/or ETP restricted phantom units, each unvested award of ETP restricted units and/or ETP restricted phantom units held by executive officers and directors of ETP will be converted into the right to receive a comparable restricted equity award with respect to ETE common units on the same terms and conditions as were applicable to the ETP restricted units and/or ETP restricted phantom units, except that the number of ETE common units covered by such comparable award will be equal to the number of ETP common units subject to the corresponding award of ETP multiplied by the exchange ratio, rounded up to the nearest whole unit.

Interests of ETE in the Merger (See page 86)

ETE owns ETP Managing GP and ETP GP, and controls ETP through its ownership of these two entities. ETE also owns all of the incentive distribution rights in ETP, as well as approximately 2.4% of the outstanding ETP common units and all of the Class I Units and Class J Units. ETE has different economic interests in the merger than ETP common unitholders generally due to, among other things, ETE’s ownership of the incentive distribution rights in ETP prior to the merger and the fact that ETE is the acquiring entity in the merger.

Under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE and its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

Risk Factors Relating to the Merger and Ownership of ETE Common Units (See page 30)

ETP common unitholders should consider carefully all the risk factors together with all of the other information included or incorporated by reference in this proxy statement/prospectus before deciding how to vote. Risks relating to the merger and ownership of ETE common units are described in the section titled “Risk Factors.” Some of these risks include, but are not limited to, those described below:

 

   

Because the market price of ETE common units will fluctuate prior to the consummation of the merger, ETP common unitholders cannot be sure of the market value of the ETE common units they will receive as merger consideration relative to the value of ETP common units they exchange.

 

   

The fairness opinion rendered to the ETP Conflicts Committee by Barclays was based on Barclays’ financial analysis and considered factors such as market and other conditions then in effect, financial forecasts and other information made available to Barclays as of the date of the opinion. As a result, the opinion does not reflect changes in events or circumstances after the date of such opinion. The ETP Conflicts Committee has not obtained, and does not expect to obtain, an updated fairness opinion from Barclays reflecting changes in circumstances that may have occurred since the signing of the merger agreement.

 

   

ETP and ETE may be targets of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the completion of the merger.



 

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Maintaining credit ratings is under the control of ratings agencies, which are independent third parties. There can be no assurances that the combined partnership will qualify for an investment-grade credit rating, and the failure to qualify for an investment-grade credit rating could negatively impact the combined partnership’s access to capital and costs of doing business.

 

   

ETP’s and ETE’s financial estimates are based on various assumptions that may not prove to be correct.

 

   

Directors and officers of ETP have certain interests that are different from those of ETP unitholders generally.

 

   

The ETP partnership agreement limits the duties of ETP GP to ETP common unitholders and restricts the remedies available to unitholders for actions taken by ETP GP that might otherwise constitute breaches of its duties.

 

   

ETE common unitholders have limited voting rights and are not entitled to elect ETE’s general partner or the directors of ETE’s general partner. Following the closing, the ETE Class A Units issued to ETE GP concurrently with closing would, together with the ETE common units owned by ETE GP, result in ETE GP and its affiliates maintaining the same relative voting power following the merger as they have prior to the merger, until such time as Mr. Warren is no longer an officer or director of ETE GP.

 

   

ETE common units to be received by ETP common unitholders as a result of the merger have different rights than ETP common units.

 

   

The number of outstanding ETE common units will increase as a result of the merger, which could make it more difficult for ETE to pay the current level of quarterly distributions.

 

   

ETE and ETP will incur substantial transaction-related costs in connection with the merger, including fees paid to legal, financial and accounting advisors, filing fees and printing costs.

 

   

The merger is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Failure to complete the merger, or significant delays in completing the merger, could negatively affect the trading prices of ETE common units and ETP common units and the future business and financial results of ETE and ETP.

 

   

ETP is subject to provisions in the merger agreement that limit its ability to pursue alternatives to the merger, which could discourage a potential competing acquirer of ETP from making a favorable alternative transaction proposal and, in specified circumstances under the merger agreement, would require ETP to reimburse up to $30.0 million of ETE’s out-of-pocket expenses and pay a termination fee to ETE of $750.0 million less any previous expense reimbursements.

 

   

If a governmental authority asserts objections to the merger, ETE and ETP may be unable to complete the merger or, in order to do so, ETE and ETP may be required to comply with material restrictions or satisfy material conditions.

 

   

ETE and ETP are subject to contractual interim operating restrictions while the proposed merger is pending, which could adversely affect each party’s business and operations.

 

   

If the merger is approved by ETP common unitholders, the date on which ETP common unitholders will receive the merger consideration is uncertain.

 

   

ETP common unitholders will have a reduced ownership in the combined organization after the merger as compared to their ownership of ETP.

 

   

No ruling has been requested with respect to the U.S. federal income tax consequences of the merger.

 

   

The intended U.S. federal income tax consequences of the merger are dependent upon ETE and ETP being treated as partnerships for U.S. federal income tax purposes.



 

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ETE’s tax treatment following the merger will depend on its status as a partnership for U.S. federal income tax purposes, as well as it not being subject to a material amount of entity-level taxation by individual states or local entities. If the IRS were to treat ETE as a corporation or ETE were to become subject to a material amount of entity-level taxation for state or local tax purposes, the amount of cash available for payment for distributions on the ETE common units would be substantially reduced.

Material U.S. Federal Income Tax Consequences of the Merger (See page 114)

Tax matters associated with the merger are complicated. The U.S. federal income tax consequences of the merger to an ETP common unitholder will depend, in part, on such unitholder’s own unique tax situation. The tax discussions contained herein focus on the U.S. federal income tax consequences generally applicable to individuals who are residents or citizens of the United States that hold their ETP common units as capital assets, and these discussions have only limited application to other unitholders, including those subject to special tax treatment. ETP common unitholders are urged to consult their tax advisors for a full understanding of the U.S. federal, state, local and foreign tax consequences of the merger that will be applicable to them.

The expected U.S. federal income tax consequences of the merger are dependent upon ETE and ETP being treated as partnerships for U.S. federal income tax purposes at the time of the merger. Whether each of ETE and ETP will be treated as partnerships for U.S. federal income tax purposes at the time of the merger will depend, in part, on whether at least 90% of the gross income of each of them for the calendar year that immediately proceeds the merger and the calendar year that includes the closing date of the merger is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code.

In connection with the merger, ETP expects to receive an opinion from Vinson & Elkins L.L.P. to the effect that (i) for U.S. federal income tax purposes (a) ETP should not recognize any income or gain as a result of the merger and (b) no gain or loss should be recognized by holders of ETP common units as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code or any deemed sale of ETE common units pursuant to the withholding provisions of the merger agreement and except to the extent that any Section 707 Consideration (as defined below) causes the merger to be treated as a “disguised sale”); and (ii) at least 90% of the gross income of ETP for all of the calendar year that immediately precedes the calendar year that includes the closing date of the merger and each calendar quarter of the calendar year that includes the closing date of the merger for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code. The requirement to deliver such opinion may be waived.

In connection with the merger, ETE expects to receive an opinion from Latham & Watkins LLP to the effect that (i) for U.S. federal income tax purposes (a) ETE should not recognize any income or gain as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code), and (b) no gain or loss should be recognized by holders of ETE common units prior to the merger as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code); and (ii) (a) at least 90% of the gross income of ETE for all of the calendar year that immediately precedes the calendar year that includes the closing date of the merger and each calendar quarter of the calendar year that includes the closing date of the merger for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code and (b) at least 90% of the combined gross income of each of ETE and ETP for all of the calendar year that immediately precedes the calendar year that includes the closing date of the merger and each calendar quarter of the calendar year that includes the closing date of the merger for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code. The requirement to deliver such opinion may be waived.



 

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Opinions of counsel, however, are subject to certain limitations and are not binding on the Internal Revenue Service (“IRS”) and no assurance can be given that the IRS would not successfully assert a contrary position regarding the merger and the opinions of counsel. In addition, such opinions will be based upon certain factual assumptions and certain representations, warranties and covenants made by the officers of ETE, ETP and any of their respective affiliates. If either ETE or ETP waives the receipt of the requisite tax opinion as a condition to closing and the changes to the tax consequences would be material, then this proxy statement/prospectus will be amended and recirculated and unitholder approval will be resolicited. Please read “Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal income tax consequences of the merger.

Accounting Treatment of the Merger (See page 86)

ETE controls ETP through its ownership of ETP Managing GP and ETP GP and therefore currently consolidates the operations of ETP into ETE’s financial statements. Subsequent to the merger, ETE will continue to present consolidated financial statements that reflect the historical consolidated financial statements of ETP. The merger will be accounted for as an equity transaction and will be reflected in the consolidated financial statements as ETE’s acquisition of ETP’s noncontrolling interest. The carrying amounts of ETE’s and ETP’s assets and liabilities will not be adjusted, nor will a gain or loss be recognized as a result of the merger.

Listing of ETE Common Units; Delisting and Deregistration of ETP Common Units (See page 87)

ETE common units are currently listed on the NYSE under the ticker symbol “ETE.” It is a condition to closing that the ETE common units to be issued in the merger to ETP common unitholders be approved for listing on the NYSE, subject to official notice of issuance. Following the consummation of the merger, it is expected that ETE will change its name to “Energy Transfer LP” and apply to continue the listing of its common units on the NYSE under the new symbol “ET.”

ETP common units are currently listed on the NYSE under the ticker symbol “ETP,” while the Series C Preferred Units and Series D Preferred Units in ETP are currently listed on the NYSE under the ticker symbols “ETPprC” and “ETPprD,” respectively. If the merger is completed, ETP common units will cease to be listed on the NYSE and will be deregistered under the Exchange Act. However, the Series C Preferred Units and the Series D Preferred Units in ETP will continue to be listed on the NYSE under the ticker symbols “ETPprC” and “ETPprD.” At the closing of the merger, it is expected that ETP will change its name to “Energy Transfer Operating, L.P.”

No Dissenters’ Rights or Appraisal Rights (See page 86)

Neither dissenters’ rights nor appraisal rights are available in connection with the merger under the Delaware LP Act, the merger agreement or the ETP partnership agreement.

Conditions to Consummation of the Merger (See page 90)

ETE and ETP currently expect to complete the merger shortly following the conclusion of the special meeting, subject to receipt of the required ETP common unitholder approvals and regulatory approvals and clearances and to the satisfaction or waiver of the other conditions to the transactions contemplated by the merger agreement described below.

As more fully described in this proxy statement/prospectus, each party’s obligation to complete the transactions contemplated by the merger agreement depends on a number of customary closing conditions being satisfied or, where legally permissible, waived, including the following:

 

   

the merger agreement and the transactions contemplated thereby must have been adopted by the affirmative vote or consent of the holders of at least a majority of the outstanding ETP common units;



 

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the merger agreement and the transactions contemplated thereby must have been adopted by the affirmative vote or consent of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders;

 

   

any waiting period applicable to the transactions contemplated by the merger agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), must have been terminated or expired, and any required approval or consent under any other applicable antitrust law must have been obtained (early termination of the waiting period under the HSR Act was granted on September 4, 2018);

 

   

there must be no law, injunction, judgment, ruling or agreement enacted, promulgated, issued, entered, amended, enforced by or entered into with any governmental authority that is in effect enjoining, restraining, preventing or prohibiting the consummation of the transactions contemplated by the merger agreement or making the consummation of the transactions contemplated by the merger agreement illegal, and there must be no threatened or pending proceeding with any governmental authority regarding the transactions contemplated by the merger agreement;

 

   

the registration statement of which this proxy statement/prospectus forms a part must have been declared effective by the SEC and such registration statement must not be subject to any stop order or proceedings initiated or threatened by the SEC;

 

   

the ETE common units to be issued as part of the merger consideration must have been approved for listing on the NYSE, subject to official notice of issuance;

 

   

ETP having received from Vinson & Elkins L.L.P., tax counsel to ETP, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Merger”; and

 

   

ETE having received from Latham & Watkins LLP, tax counsel to ETE, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Merger.”

The obligations of ETE and ETE Merger Sub to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

   

the representations and warranties of ETP in the merger agreement being true and correct in all respects both when made and at and as of the date of the closing of the merger, subject to certain standards, including materiality and material adverse effect qualifications, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Merger”;

 

   

ETP having performed, in all material respects, all obligations required to be performed by it under the merger agreement at or prior to the closing of the merger;

 

   

the receipt of one or more certificates executed by an executive officer of ETP and an authorized signatory of ETP GP certifying that the two preceding conditions have been satisfied; and

 

   

ETE having received from Latham & Watkins LLP, tax counsel to ETE, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Merger.”

The obligations of ETP to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

   

the representations and warranties of ETE and ETE Merger Sub in the merger agreement being true and correct in all respects both when made and at and as of the date of the closing of the merger, subject to certain standards, including materiality and material adverse effect qualifications, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Merger”;



 

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ETE and ETE Merger Sub having performed, in all material respects, all obligations required to be performed by them under the merger agreement;

 

   

the receipt of one or more certificates executed by an executive officer of ETE and an authorized signatory of ETE Merger Sub and ETE GP certifying that the two preceding conditions have been satisfied;

 

   

ETP having received from Vinson & Elkins, L.L.P., tax counsel to ETP, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement— Conditions to Consummation of the Merger”; and

 

   

ETE GP having executed and delivered to ETE an amendment to the Third Amended and Restated Agreement of Limited Partnership of Energy Transfer Equity, L.P. (the “ETE partnership agreement”), which provides for the establishment and issuance of the ETE Class A Units to ETE GP (such amendment, the “ETE LPA amendment”).

Regulatory Approvals and Clearances Required for the Merger (See page 86)

Consummation of the merger is subject to the expiration or termination of the applicable waiting period under the HSR Act, if any, and obtaining any approval or consent under any other applicable antitrust law. Early termination of the waiting period under the HSR Act was granted on September 4, 2018. See “The Merger—Regulatory Approvals and Clearances Required for the Merger.”

No Solicitation by ETP of Alternative Proposals (See page 94)

The merger agreement contains detailed provisions prohibiting ETP from seeking an alternative proposal to the merger. Under these “no solicitation” provisions, ETP has agreed that, except as otherwise permitted in the merger agreement, it will not, and will cause its subsidiaries not to, and use its reasonable best efforts to cause its and its subsidiaries’ directors, officers, employees, investment bankers, financial advisors, attorneys, accountants, agents and other representatives not to, directly or indirectly:

 

   

solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquiries or any proposals that constitute or could reasonably be expected to lead to an alternative proposal;

 

   

grant any waiver or release of any standstill or similar agreement with respect to any units of ETP or of any of its subsidiaries;

 

   

enter into any confidentiality agreement, merger agreement, letter of intent, agreement in principle, unit purchase agreement, asset purchase agreement or unit exchange agreement, option agreement or other similar agreement relating to an alternative proposal; or

 

   

withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to ETE, the ETP Board recommendation or publicly recommend the approval or adoption of, or publicly approve or adopt, or propose to publicly recommend, approve or adopt, any alternative proposal, or fail to recommend against acceptance of any tender offer or exchange offer for ETP common units within 10 business days after commencement of such offer, or resolving or agreeing to take any of the foregoing actions.

The merger agreement provides that within five business days of receipt of a written request of ETE following the receipt by ETP of any alternative proposal, ETP must publicly reconfirm the ETP Board recommendation; provided, that, in the event ETE requests such public reconfirmation of the ETP Board recommendation, ETP may not unreasonably withhold, delay (beyond the five business day period) or condition the public reconfirmation of the ETP Board recommendation and provided, further, that ETE will not be



 

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permitted to make such request on more than one occasion in respect of each alternative proposal and each material modification to an alternative proposal, if any (the failure to take the foregoing action, collectively with the taking of either of the actions noted in bullets three and four above, are each referred to herein as an “adverse recommendation change”).

In addition, the merger agreement requires ETP and its subsidiaries to (i) cease and cause to be terminated any discussions or negotiations with any persons conducted prior to the execution of the merger agreement regarding an alternative proposal, (ii) request the return or destruction of all confidential information previously provided to any such persons by or on behalf of ETP or its subsidiaries and (iii) immediately prohibit any access by any persons (other than ETE and its representatives) to any physical or electronic data room relating to a possible alternative proposal.

Notwithstanding these restrictions, the merger agreement provides that, under specified circumstances at any time prior to ETP common unitholders and unaffiliated ETP common unitholders voting in favor of adopting the merger agreement, ETP may furnish information, including confidential information, with respect to ETP and its subsidiaries to, and participate in discussions or negotiations with, a third party, if (i) ETP has received a written alternative proposal that the ETP Board (upon the recommendation of the ETP Conflicts Committee) believes is bona fide, the ETP Board (upon the recommendation of the ETP Conflicts Committee), after consultation with its financial advisors and outside legal counsel, determines in good faith that (A) such alternative proposal constitutes or could reasonably be expected to lead to or result in a superior proposal and (B) failure to take such action would be inconsistent with the ETP Board’s duties under applicable law, as modified by the ETP partnership agreement, and (iii) such alternative proposal did not result from a material breach of the no solicitation provisions in the merger agreement.

ETP has also agreed in the merger agreement that it (i) will promptly, and in no event later than 24 hours after receipt, notify ETE of any alternative proposal or any request for information or inquiry with regard to any alternative proposal and the identity of the person making any such alternative proposal, request or inquiry (including providing ETE with copies of any written materials received from or on behalf of such person relating to such proposal, offer, request or inquiry) and (ii) will provide ETE with the terms, conditions and nature of any such alternative proposal, request or inquiry. In addition, ETP agrees to keep ETE reasonably informed of all material developments affecting the status and terms of any such alternative proposals, offers, inquiries or requests (and promptly provide ETE with copies of any written materials received by it or that it has delivered to any third party making an alternative proposal that relate to such proposals, offers, requests or inquiries) and of the status of any such discussions or negotiations.

Change in ETP Board Recommendation (See page 95)

Subject to the satisfaction of specified conditions in the merger agreement described under “Proposal 1: The Merger Agreement—Change in ETP Board Recommendation,” the ETP Board and the ETP Conflicts Committee may, at any time prior to the adoption of the merger agreement by the ETP common unitholders, effect an adverse recommendation change in response to either (i) an alternative proposal constituting a superior proposal or (ii) a changed circumstance that arises or occurs after the date of the merger agreement and was not, prior to the date of the merger agreement, known to or reasonably foreseeable by the ETP Board prior to the date of the merger agreement and did not result from or arise out of the announcement or pendency of or any actions required to be taken by (or to be refrained from being taken by) ETP pursuant to the merger agreement, subject to certain exceptions as more particularly set forth in the merger agreement, and in each of the cases described in clauses (i) and (ii), upon the recommendation of the ETP Conflicts Committee and after consultation with its outside legal counsel and financial advisors, the ETP Board determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its duties under applicable law, as modified by the ETP partnership agreement.



 

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Termination of the Merger Agreement (See page 98)

The merger agreement may be terminated at any time prior to the effective time:

 

   

by mutual written consent of ETE and ETP;

 

   

by either ETE or ETP:

 

   

if the merger has not been consummated on or before March 31, 2019 (the “outside date”); provided, that the right to terminate is not available to a party if the inability to satisfy such condition was due to the failure of such party to perform any of its obligations under the merger agreement or if the other party has filed and is pursuing an action seeking specific performance pursuant to the terms of the merger agreement;

 

   

if any governmental authority has issued a final and nonappealable law, injunction, judgment or ruling that enjoins or otherwise prohibits the consummation of the transactions contemplated by the merger agreement or makes the transactions contemplated by the merger agreement illegal; provided, however, that the right to terminate is not available to a party if such final law, injunction, judgment or rule was due to the failure of such party to perform any of its obligations under the merger agreement; or

 

   

if the special meeting or any adjournment or postponement of such meeting has concluded and the required approvals by the ETP common unitholders and the unaffiliated ETP common unitholders have not been obtained;

 

   

by ETE:

 

   

if an adverse recommendation change by the ETP Board shall have occurred;

 

   

if prior to the adoption of the merger agreement by ETP common unitholders and unaffiliated ETP common unitholders, ETP is in willful breach of its obligations to (i) duly call, give notice of, convene and hold a special meeting of ETP common unitholders for the purpose of obtaining unitholder approval of the merger agreement, use its reasonable best efforts to solicit proxies from the ETP common unitholders in favor of such adoption and, through the ETP Board, recommend the adoption of the merger agreement to ETP common unitholders or (ii) comply with the requirements described under “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals,” in each case, subject to certain exceptions discussed in “Proposal 1: The Merger Agreement—Termination of the Merger Agreement”; or

 

   

if there is a breach by ETP of any of its representations, warranties, covenants or agreements in the merger agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice from ETE of such breach, subject to certain exceptions discussed in “Proposal 1: The Merger Agreement—Termination of the Merger Agreement”;

 

   

by ETP:

 

   

if there is a breach by ETE of any of its representations, warranties, covenants or agreements in the merger agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice from ETP of such breach, subject to certain exceptions discussed in “Proposal 1: The Merger Agreement—Termination of the Merger Agreement”; or

 

   

prior to the adoption of the merger agreement by the ETP common unitholders and the unaffiliated ETP common unitholders, in order to enter into (concurrently with such termination) any agreement, understanding or arrangement providing for a superior proposal in accordance with the requirements described under “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals,” including payment of the termination fee.



 

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Expenses (See page 100)

Generally, all fees and expenses incurred in connection with the transactions contemplated by the merger agreement will be the obligation of the party incurring such fees and expenses (other than the filing fee payable to the SEC in connection with the registration statement to which this proxy statement/prospectus relates and the filing fee payable in connection with the filing of a Notification and Report Form pursuant to the HSR Act, which will each be borne one-half by each of ETE and ETP).

In addition, following a termination of the merger agreement in specified circumstances, including if the ETP common unitholder approval or the unaffiliated ETP common unitholder approval is not obtained, ETP will be required to pay all of the reasonably documented out-of-pocket expenses incurred by ETE and its affiliates in connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by ETE or its affiliates.

Termination Fee (See page 100)

Following termination of the merger agreement under specified circumstances, including due to an adverse recommendation change having occurred, ETP will be required to pay ETE a termination fee of $750.0 million, less any expenses of ETE and its affiliates previously reimbursed by ETP to ETE pursuant to the merger agreement. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by ETE or its affiliates.

Comparison of Rights of ETE Common Unitholders and ETP Common Unitholders (See page 138)

ETP common unitholders will own ETE common units following the completion of the merger, and their rights associated with those ETE common units will be governed by the ETE partnership agreement (as amended by the ETE LPA amendment), which differs in a number of respects from the ETP partnership agreement, and the Delaware LP Act.



 

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Organizational Structure Prior to and Following the Merger

The following represents the simplified organizational structure of ETE and ETP prior to the merger:

 

LOGO

 

(1)

Includes 27,535,127 ETP common units held by ETE and its subsidiaries.



 

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The following represents the simplified organizational structure of ETE and ETP following the completion of the pre-closing transactions, the merger and the issuance of the ETE Class A Units:

 

LOGO

 

(1)

Includes 1,286,033,433 ETP common units issued to ETE and its subsidiaries in connection with the pre-closing transactions.



 

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Summary Historical Consolidated Financial Data of ETE

The following summary historical consolidated balance sheet data as of December 31, 2017, 2016, 2015, 2014 and 2013 and the summary historical consolidated statement of operations for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from ETE’s audited historical consolidated financial statements. The summary historical consolidated balance sheet data and statement of operations data as of and for the six months ended June 30, 2018 and 2017 are derived from ETE’s unaudited historical consolidated financial statements.

You should read the following historical consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto set forth in ETE’s Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the three months ended June 30, 2018, which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

 

    Six Months Ended June 30,     Year Ended December 31,  
(Dollars in millions, except per unit data)       2018             2017         2017     2016     2015     2014     2013  

Income Statement Data:

             

Revenues:

             

Natural gas sales

    2,086       2,034       4,172       3,619       3,671       5,386       3,842  

NGL sales

    4,171       3,033       6,972       4,841       3,935       5,845       3,618  

Crude sales

    7,495       4,887       10,184       6,766       8,378       16,416       15,477  

Gathering, transportation and other fees

    3,097       2,176       4,435       4,172       4,200       3,733       3,097  

Refined product sales

    8,628       5,918       11,975       10,097       11,321       18,372       18,479  

Other

    523       1,040       2,785       2,297       4,591       4,683       3,822  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    26,000       19,088       40,523       31,792       36,096       54,435       48,335  

Operating income

    2,226       1,500       2,713       1,843       2,287       2,389       1,587  

Other income (expense)

             

Interest expense, net of interest capitalized

    (976     (950     (1,922     (1,804     (1,622     (1,368     (1,221

Equity in earnings of unconsolidated affiliates

    171       136       144       270       276       332       236  

Losses on extinguishments of debt

    (106     (25     (89     —         (43     (25     (162

Gains (losses) on interest rate derivatives

    72       (20     (37     (12     (18     (157     53  

Other, net

    56       74       214       132       20       (9     (1

Income from continuing operations before income tax expense

    1,443       715       710       204       900       1,339       318  

Net Income

    1,122       440       2,366       —         1,061       1,074       351  

Net income (loss) attributable to noncontrolling interests

    404       (11     1,412       (995     (128     441       144  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Partners

    718       451       954       995       1,189       633       207  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income per Limited Partner unit:

             

Basic

    0.62       0.40       0.85       0.94       1.11       0.58       0.18  

Diluted

    0.62       0.39       0.83       0.92       1.11       0.58       0.18  

Cash distributions per unit to Limited Partners:

             

Paid

    0.61       0.57       1.15       1.14       1.02       1.50       1.30  

Declared

    0.61       0.57       1.17       1.14       1.08       1.60       1.33  


 

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Summary Historical Consolidated Financial Data of ETP

The following summary historical consolidated balance sheet data as of December 31, 2017, 2016, 2015, 2014 and 2013 and the summary historical consolidated statement of operations for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from ETP’s audited historical consolidated financial statements. The summary historical consolidated balance sheet data and statement of operations data as of and for the six months ended June 30, 2018 and 2017 are derived from ETP’s unaudited historical consolidated financial statements.

You should read the following historical consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto set forth in ETP’s Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the three months ended June 30, 2018, which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

 

     Six Months
Ended June 30,
    Historical
Year Ended December 31,
 
(Dollars in millions, except per unit data)    2018      2017     2017      2016     2015     2014      2013  

Statement of Operations Data:

                 

Total revenues

     17,690        13,471       29,054        21,827       34,292       55,475        48,335  

Operating income

     1,916        1,419       2,397        1,761       2,227       2,393        1,655  

Income from continuing operations

     1,510        823       2,501        583       1,489       1,185        749  

Basic net income (loss) per common unit

     0.23        (0.02     0.94        (1.38     (0.07     1.16        (0.1

Diluted net income (loss) per common unit

     0.23        (0.02     0.93        (1.38     (0.08     1.15        (0.1

Cash distributions declared per common unit

     1.13        1.09       2.22        2.02       1.79       1.5        1.23  

Balance Sheet Data (at period end):

                 

Total assets

     78,570        74,219       77,965        70,105       65,128       62,505        49,937  

Long-term debt, less current maturities

     33,741        32,029       32,687        31,741       28,553       24,831        19,761  

Total equity

     34,036        29,415       34,151        26,441       26,986       25,298        18,731  

Other Financial Data:

                 

Capital expenditures:

                 

Maintenance (accrual basis)

     204        167       429        368       485       444        391  

Growth (accrual basis)

     2,241        2,959       5,472        5,442       7,682       5,050        2,936  

Cash paid for acquisitions

     29        541       264        1,227       804       2,367        1,737  

Unaudited Comparative Per Unit Information

The table below sets forth historical and unaudited pro forma combined per unit information of ETE and ETP.

Historical Per Unit Information of ETE and ETP

The historical per unit information of ETE and ETP set forth in the table below is derived from the unaudited consolidated financial statements as of and for the six months ended June 30, 2018 as well as the audited consolidated financial statements as of and for the year ended December 31, 2017 for each of ETE and ETP.

Pro Forma Combined Per Unit Information of ETE

The unaudited pro forma combined per unit information of ETE set forth in the table below gives effect to the merger as if the merger had been consummated on January 1, 2017, in the case of income from continuing



 

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operations per unit and cash distributions data, and June 30, 2018, in the case of book value per unit data, and, in each case, assuming that a number of ETE common units equal to 1.28 have been issued in exchange for each outstanding ETP common unit. The unaudited pro forma combined per unit information of ETE is derived from the unaudited consolidated financial statements as of and for the six months ended June 30, 2018 for each of ETE and ETP, as well as the audited consolidated financial statements as of and for the year ended December 31, 2017 for each of ETE and ETP.

Equivalent Pro Forma Combined Per Unit Information of ETP

The unaudited ETP equivalent pro forma per unit amounts set forth in the table below are calculated by multiplying the unaudited pro forma combined per unit amounts of ETE by the sum of the exchange ratio of 1.28.

General

You should read the information set forth below in conjunction with the summary historical financial information of ETE and ETP included elsewhere in this proxy statement/prospectus and the historical financial statements and related notes of ETE and ETP that are incorporated into this proxy statement/prospectus by reference. See “—Summary Historical Consolidated Financial Data of ETE,” “—Summary Historical Consolidated Financial Data of ETP” and “Where You Can Find More Information.”

The unaudited pro forma per unit information of ETE does not purport to represent the actual results of operations that ETE would have achieved or distributions that would have been declared had the companies been combined during these periods or to project the future results of operations that ETE may achieve or the distributions it may pay after the merger.

 

     As of and for the Six
Months Ended June 30, 2018
    As of and for the Year Ended
December 31, 2017
 
     (in millions, except per unit data)  

Historical—ETE

    

Income from continuing operations

   $ 1,385     $ 2,543  

Distribution per common unit declared for the period

   $ 0.610     $ 1.170  

Book value per common unit

   $ (0.95   $ (1.43

 

     As of and for the Six
Months Ended June 30, 2018
     As of and for the Year Ended
December 31, 2017
 
     (in millions, except per unit data)  

Historical—ETP

     

Income from continuing operations

   $ 1,481      $ 2,501  

Distribution per common unit declared for the period

   $ 1.130      $ 2.215  

Book value per common unit

   $ 21.81      $ 22.69  

 

     As of and for the Six
Months Ended June 30, 2018
     As of and for the Year Ended
December 31, 2017
 
     (in millions, except per unit data)  

Pro Forma Combined

     

Income from continuing operations

   $ 1,385      $ 2,543  

Distribution per common unit declared for the period(1)

   $ 0.610      $ 1.170  

Book value per common unit

   $ 17.59      $ 18.17  

 

(1)

Pro forma combined distributions per common unit for the periods presented are assumed to be consistent with the historical distributions per common unit declared by ETE for such periods.



 

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Comparative Unit Prices and Distributions

ETE common units are currently listed on the NYSE under the ticker symbol “ETE.” ETP common units are currently listed on the NYSE under the ticker symbol “ETP.” The table below sets forth, for the calendar quarters indicated, the high and low sale prices per ETE common unit on the NYSE and per ETP common unit on the NYSE. The table also shows the amount of cash distributions declared on ETE common units and ETP common units, respectively, for the calendar quarters indicated.

 

    ETE Common Units     ETP Common Units  
    High     Low     Cash
Distributions
    High      Low     Cash
Distributions
 

2018

            

Third quarter (through September 6, 2018)(1)

  $ 19.19     $ 16.78     $ —       $ 24.38      $ 18.60     $ —    

Second quarter

    17.96       13.73       0.3050       19.78        15.82       0.5650  

First quarter

    19.34       12.80       0.3050       20.81        15.06       0.5650  

2017

            

Fourth quarter

  $ 18.71     $ 15.64     $ 0.3050     $ 18.83      $ 15.25     $ 0.5650  

Third quarter

    18.50       16.18       0.2950       21.68        17.85       0.5650  

Second quarter

    19.82       15.03       0.2850       24.71        18.31       0.5500  

First quarter

    20.05       17.62       0.2850       26.73        22.90       0.5350  

2016

            

Fourth quarter

  $ 19.99     $ 13.77     $ 0.2850     $ 28.61      $ 22.07     $ 0.5200  

Third quarter

    19.44       13.45       0.2850       31.49        26.88       0.5100  

Second quarter

    15.13       6.40       0.2850       29.77        22.63       0.5000  

First quarter

    14.39       4.00       0.2850       28.72        15.43       0.4890  

 

(1)

Cash distributions in respect of the third quarter of 2018 have not been declared or paid.

The following table presents per unit closing prices of ETE common units and ETP common units on (i) August 1, 2018, the last trading day before the public announcement of the merger, and (ii) on September 6, 2018, the most recent practicable trading day before the date of this proxy statement/prospectus. This table also presents the equivalent market value per ETP common unit on such dates. The equivalent market value per ETP common unit has been determined by multiplying the closing price of ETE common units on those dates by the exchange ratio if the merger had been effective on such date.

 

     ETE
Common Units
     ETP
Common Units
     Equivalent Market
Value per ETP
Common Unit
 

August 1, 2018

   $ 18.43      $ 21.21      $ 23.59  

September 6, 2018

   $ 17.51      $ 22.44      $ 22.41  

Although the exchange ratio is fixed, the market prices of ETE common units and ETP common units will fluctuate prior to the consummation of the merger and the market value of the merger consideration ultimately received by ETP common unitholders will depend on the closing price of ETE common units on the day the merger is consummated. Thus, ETP common unitholders will not know the exact market value of the merger consideration they will receive until the closing of the merger.



 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for the adoption of the merger agreement and the transactions contemplated thereby. You should also read and carefully consider the risks associated with each of ETE and ETP and their respective businesses. These risks can be found in ETE’s and ETP’s respective Annual Reports on Form 10-K for the year ended December 31, 2017 as updated by any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. For further information regarding the documents incorporated into this proxy statement/prospectus by reference, please see the section titled “Where You Can Find More Information.” Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described in the documents incorporated by reference could have a material adverse effect on ETE’s, ETP’s or the combined organization’s businesses, financial condition, cash flows and results of operations and could result in a decline in the trading prices of their respective common units.

Risk Factors Relating to the Merger

Because the market price of ETE common units will fluctuate prior to the consummation of the merger, ETP common unitholders cannot be sure of the market value of the ETE common units they will receive as merger consideration relative to the value of ETP common units they exchange.

The market value of the merger consideration that ETP common unitholders will receive in the merger will depend on the trading price of ETE’s common units at the closing of the merger. The exchange ratio that determines the number of ETE common units that ETP common unitholders will receive as consideration in the merger is fixed. This means that there is no mechanism contained in the merger agreement that would adjust the number of ETE common units that ETP common unitholders will receive as the merger consideration based on any decreases or increases in the trading price of ETE common units. Unit price changes may result from a variety of factors (many of which are beyond ETE’s or ETP’s control), including:

 

   

changes in ETE’s and ETP’s business, operations and prospects;

 

   

changes in market assessments of ETE’s and ETP’s business, operations and prospects;

 

   

interest rates, general market, industry and economic conditions and other factors generally affecting the price of ETE common units; and

 

   

federal, state and local legislation, governmental regulation and legal developments in the businesses in which ETE and ETP operate.

Because the merger will be completed after the special meeting, at the time of the meeting, you will not know the exact market value of the ETE common units that you will receive upon completion of the merger. If ETE’s common unit price at the closing of the merger is less than ETE’s common unit price on the date on which the merger agreement was signed, then the market value of the merger consideration received by ETP common unitholders will be less than contemplated at the time the merger agreement was signed.

The fairness opinion rendered to the ETP Conflicts Committee by Barclays was based on Barclays’ financial analysis and considered factors such as market and other conditions then in effect, financial forecasts and other information made available to Barclays as of the date of the opinion. As a result, the opinion does not reflect changes in events or circumstances after the date of such opinion. The ETP Conflicts Committee has not obtained, and does not expect to obtain, an updated fairness opinion from Barclays reflecting changes in circumstances that may have occurred since the signing of the merger agreement.

The fairness opinion rendered to the ETP Conflicts Committee by Barclays was provided in connection with, and at the time of, the evaluation of the merger and the merger agreement by the ETP Conflicts Committee.

 

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The opinion was based on the financial analyses performed, which considered market and other conditions then in effect, the Unaudited Financial Projections (dated June 5, 2018) and other information made available to Barclays as of the date of the opinion, which may have changed, or may change, after the date such information was prepared or after the date of the opinion. The ETP Conflicts Committee has not obtained an updated opinion from Barclays following the date of the merger agreement and does not expect to obtain an updated opinion prior to completion of the merger. Changes in the operations and prospects of ETE or ETP, general market and economic conditions and other factors that may be beyond the control of ETE and ETP, and on which the fairness opinion was based, may have altered the value of ETE or ETP or the prices of ETE common units or ETP common units since the date of such opinion, or may alter such values and prices by the time the merger is completed. The opinion does not speak as of any date other than the date of the opinion. For a description of the opinion that Barclays rendered to the ETP Conflicts Committee, please refer to “The Merger—Opinion of the Financial Advisor to the ETP Conflicts Committee.”

ETP and ETE may be targets of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the completion of the merger.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements in an effort to enjoin the merger or seek monetary relief from ETP or ETE. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. ETP and ETE cannot predict the outcome of these lawsuits, or others, nor can they predict the amount of time and expense that will be required to resolve such litigation. An unfavorable resolution of any such litigation surrounding the merger could delay or prevent its consummation. In addition, the costs defending the litigation, even if resolved in ETP’s or ETE’s favor, could be substantial and such litigation could distract ETP and ETE from pursuing the consummation of the merger and other potentially beneficial business opportunities.

Maintaining credit ratings is under the control of ratings agencies, which are independent third parties. There can be no assurances that the combined partnership will qualify for an investment-grade credit rating, and the failure to qualify for an investment-grade credit rating could negatively impact the combined partnership’s access to capital and costs of doing business.

In connection with the completion of the merger, ratings agencies may reevaluate ETE’s and ETP’s credit ratings. ETE and ETP expect that the combined partnership will qualify for an investment-grade credit rating consistent with ETP’s current rating; however, credit rating agencies perform independent analysis when assigning credit ratings and there can be no assurances that such ratings will be achieved in connection with the merger or maintained in the future. The analysis includes a number of criteria including, but not limited to, business composition, market and operational risks, as well as various financial tests. The combined company’s ratings upon completion of the merger will reflect each rating organization’s opinion of the combined company’s financial strength, operating performance and ability to meet the obligations associated with its securities. In addition, the trading market for ETE’s and ETP’s securities depends, in part on the research and reports that third-party securities analysts publish about ETE and ETP and the industry in which they participate. In connection with the completion of the merger, one or more of these analysts could downgrade ETE or ETP securities or issue other negative commentary about ETE or ETP and the industry in which they participate, which could cause the trading price of such securities to decline.

Failure to qualify for an investment-grade credit rating or a downgrade may increase ETE’s and ETP’s cost of borrowing, may negatively impact ETE’s and ETP’s ability to raise additional debt capital, may negatively impact ETE’s and ETP’s ability to successfully compete, and may negatively impact the willingness of counterparties to deal with ETE and ETP, each of which could have a material adverse effect on the business, financial condition, results of operations and cash flows of ETE and ETP, as well as the market price of their respective securities.

 

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Credit rating agencies continue to review the criteria for industry sectors and various debt ratings on an ongoing basis and may make changes to those criteria from time to time. Ratings are subject to revision or withdrawal at any time by the rating agencies. The credit rating of the combined company will be subject to ongoing evaluation by credit rating agencies, and downgrades in the combined company’s ratings could adversely affect the combined company’s business, cash flows, financial condition, operating results and share and debt prices.

ETP’s and ETE’s financial estimates are based on various assumptions that may not prove to be correct.

The financial estimates set forth in the forecast included under “The Merger—Unaudited Financial Projections of ETE, ETP and the Combined Partnership” are based on assumptions of, and information available to, ETP and ETE, as of June 5, 2018, the time they were prepared. Neither ETP nor ETE knows whether such assumptions will prove correct. Any or all of such estimates may not necessarily be realized. Such estimates can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond ETP’s and ETE’s control. Many factors mentioned in this proxy statement/prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements,” will be important in determining ETP’s and ETE’s future results. As a result of these contingencies, actual future results may vary materially from ETP’s and ETE’s estimates. In view of these uncertainties, the inclusion of ETP’s and ETE’s financial estimates in this proxy statement/prospectus is not and should not be viewed as a representation that the forecast results will be achieved.

The Unaudited Financial Projections were not prepared with a view toward public disclosure, and such financial estimates were not prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made, and ETP and ETE undertake no obligation, other than as required by applicable law, to update their respective financial estimates herein to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.

The Unaudited Financial Projections included in this proxy statement/prospectus have been prepared by, and are the responsibility of, ETP and ETE individually. Moreover, neither ETP’s or ETE’s independent accountants, Grant Thornton LLP, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the Unaudited Financial Projections contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and, accordingly, Grant Thornton LLP assumes no responsibility for, and disclaims any association with, the Unaudited Financial Projections. The reports of Grant Thornton LLP incorporated by reference herein relate exclusively to the historical audited financial information of the entities named in those reports and do not cover any other information in this proxy statement/prospectus and should not be read to do so. See “The Merger—Unaudited Financial Projections of ETE, ETP and the Combined Partnership” for more information.

Directors and executive officers of ETP have certain interests that are different from those of ETP unitholders generally.

Directors and executive officers of ETP are parties to agreements or participants in other arrangements that give them interests in the merger that may be different from, or in addition to, your interests as a unitholder of ETP. In addition, certain of the directors and executive officers of ETP are also directors or executive officers at ETE, and each of the directors of ETP is appointed by ETE, as the sole member of ETP Managing GP. These and other different interests are described under “The Merger—Interests of Directors and Executive Officers of ETP in the Merger.” You should consider these interests in voting on the merger.

 

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The ETP partnership agreement limits the duties of ETP GP to ETP common unitholders and restricts the remedies available to unitholders for actions taken by ETP GP that might otherwise constitute breaches of its duties.

ETP Managing GP, the general partner of ETP GP, which is the general partner of ETP, is owned by ETE. In light of potential conflicts of interest between ETE and ETP GP, on the one hand, and ETP and the ETP common unitholders, on the other hand, the ETP Board submitted the merger and related matters to the ETP Conflicts Committee for, among other things, review, evaluation, negotiation and possible approval of a majority of its members, which is referred to as “Special Approval” in the ETP partnership agreement and this proxy statement/prospectus. In addition, the merger is conditioned upon the approval of at least a majority of the unaffiliated ETP common unitholders. Under the ETP partnership agreement:

 

   

any resolution or course of action by ETP GP or its affiliates in respect of a conflict of interest is permitted and deemed approved by all partners of ETP (i.e., the ETP unitholders), and will not constitute a breach of the ETP partnership agreement or of any duty stated or implied by law or equity, if the resolution or course of action is approved by Special Approval or the holders of at least a majority of the outstanding ETP common units (other than ETP common units held by ETP GP and its affiliates); and

 

   

ETP GP may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such persons as to matters that ETP GP reasonably believes to be within such person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.

The ETP Conflicts Committee reviewed, negotiated and evaluated the merger agreement, the merger and related matters on behalf of the ETP common unitholders (other than ETE and its affiliates) and ETP. Among other things, the ETP Conflicts Committee unanimously determined in good faith that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of ETP and the unaffiliated ETP common unitholders, approved the merger agreement and the transactions contemplated thereby, including the merger, and recommended the approval of the merger agreement and the transactions contemplated thereby, including the merger, to the ETP Board.

The duties of ETP GP, the ETP Board and the ETP Conflicts Committee to ETP common unitholders in connection with the merger are substantially limited by the ETP partnership agreement.

ETE common unitholders have limited voting rights and are not entitled to elect ETE’s general partner or the directors of ETE’s general partner. Following the closing, the ETE Class A Units issued to ETE GP concurrently with closing would, together with the ETE common units owned by ETE GP, result in ETE GP and its affiliates maintaining the same relative voting power following the merger as they have prior to the merger, until such time as Mr. Warren is no longer an officer or director of ETE GP.

Unlike the holders of common stock in a corporation, ETE common unitholders have only limited voting rights on matters affecting ETE’s business, and therefore limited ability to influence ETE management’s decisions regarding its business. ETE common unitholders did not elect its general partner and will have no right to elect its general partner or the officers or directors of its general partner on an annual or other continuing basis. In addition, on matters where ETE common unitholders are entitled to vote, the ETE partnership agreement generally permits ETE GP and its affiliates to vote their ETE common units on such matters, together with unaffiliated ETE unitholders, as a single class. For example, ETE GP may only be removed as the general partner by the affirmative vote of holders of 66 2/3% of the ETE common units (including ETE GP and its affiliates), voting together as a single class. As of August 1, 2018, ETE GP and its affiliates collectively own approximately 31% of the outstanding ETE common units.

In connection with the closing of the merger and the issuance of the merger consideration to former ETP common unitholders, the percentage ownership of ETE GP and its affiliates of ETE common units is expected to

 

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be diluted to approximately 13.5%. However, at the closing of the merger, ETE will issue to ETE GP a number of ETE Class A Units necessary to ensure that ETE GP and its affiliates maintain the same relative voting power following the merger as they have prior to the merger. ETE Class A Units will not be entitled to distributions, will not have any economic attributes (other than the entitlement to $100 in the aggregate upon liquidation) and will not be convertible or exchangeable for ETE common units, but will generally vote as a single class with ETE common units. For so long as Mr. Warren continues as a director or officer of ETE GP, upon issuance of additional ETE common units following the merger, ETE will also issue additional ETE Class A Units to ETE GP such that the ETE Class A Units will continue to represent, in the aggregate, the same voting interest as they represent upon closing of the merger. The existence of the ETE Class A Units from and after closing of the merger will therefore, in certain circumstances, reduce the voting power represented by an ETE common unit compared to a scenario in which the ETE Class A Units had not been issued.

ETE common units to be received by ETP common unitholders as a result of the merger have different rights than ETP common units.

Following completion of the merger, ETP common unitholders will no longer hold ETP common units, but will instead be common unitholders of ETE. There are important differences between the rights of ETP common unitholders and the rights of ETE common unitholders. See “Comparison of Rights of ETE Common Unitholders and ETP Common Unitholders” for a discussion of the different rights associated with ETE common units and ETP common units.

The number of outstanding ETE common units will increase as a result of the merger, which could make it more difficult for ETE to pay the current level of quarterly distributions.

As of July 31, 2018, there were more than 1,158 million ETE common units outstanding. ETE expects to issue approximately 1.5 billion common units in connection with the merger. Accordingly, the aggregate dollar amount required to pay the current per unit quarterly distribution on all ETE common units will increase, which could increase the likelihood that ETE will not have sufficient funds to pay the current level of quarterly distributions to all ETE unitholders. Using a $0.305 per ETE common unit distribution (the amount ETE paid with respect to the second fiscal quarter of 2018 on August 20, 2018 to holders of record as of August 6, 2018), the aggregate cash distribution paid to ETE unitholders totaled approximately $354 million, including a distribution of $1 million to ETE GP in respect of its general partner interest. Using the same $0.305 per ETE common unit distribution, the combined pro forma ETE distribution with respect to the second fiscal quarter of 2018, had the merger been completed prior to such distribution, would have resulted in total cash distributions of approximately $811 million, including a distribution of $1 million to ETE GP in respect of its general partner interest.

ETE and ETP will incur substantial transaction-related costs in connection with the merger, including fees paid to legal, financial and accounting advisors, filing fees and printing costs.

ETE and ETP expect to incur a number of non-recurring transaction-related costs associated with completing the merger. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Thus, any net benefit of the merger may not be achieved in the near term, the long term or at all.

The merger is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Failure to complete the merger, or significant delays in completing the merger, could negatively affect the trading prices of ETE common units and ETP common units and the future business and financial results of ETE and ETP.

The completion of the merger is subject to a number of conditions, some of which are beyond the parties’ control. In addition, ETE and ETP can agree not to consummate the merger even if the ETP common unitholders approve the merger proposal and the conditions to the closing of the merger are otherwise satisfied.

 

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The completion of the merger is not assured and is subject to risks, including the risk that the closing conditions are not satisfied, including that the approval of the merger by ETP common unitholders or by governmental agencies is not obtained or the occurrence of a material adverse change to the business or results of operations of ETE and ETP. The failure to satisfy conditions to the merger may prevent or delay the merger or otherwise result in the merger not occurring. The failure of the completion of the merger, or any significant delays in completing the merger, could cause the combined company not to realize, or delay the realization of, some or all of the benefits that the combined company expects to achieve from the merger, including those relating to the trading prices of ETE common units and the respective future business and financial results of ETE and ETP, which could be negatively affected, and each of which are subject to risks, including the following:

 

   

the parties may be liable for damages to one another under the terms and conditions of the merger agreement;

 

   

negative reactions from the financial markets, including declines in the price of ETE common units or ETP common units due to the fact that current prices may reflect a market assumption that the merger will be completed;

 

   

having to pay certain significant costs relating to the merger, including, in certain circumstances, the reimbursement by ETP of up to $30.0 million of ETE’s expenses and a termination fee of $750.0 million less any previous expense reimbursements by ETP, as described in “Proposal 1: The Merger Agreement—Expenses” and “—Termination Fee”; and

 

   

the attention of management of ETE and ETP will have been diverted to the merger rather than other strategic opportunities that could have been beneficial to that organization.

ETP is subject to provisions in the merger agreement that limit its ability to pursue alternatives to the merger, which could discourage a potential competing acquirer of ETP from making a favorable alternative transaction proposal and, in specified circumstances under the merger agreement, would require ETP to reimburse up to $30.0 million of ETE’s out-of-pocket expenses and pay a termination fee to ETE of $750.0 million less any previous expense reimbursements.

Under the merger agreement, ETP is restricted from entering into alternative transactions. Unless and until the merger agreement is terminated, subject to specified exceptions (which are discussed in more detail in “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals”), ETP is restricted from soliciting, initiating, knowingly facilitating, knowingly encouraging or knowingly inducing or taking any other action intended to lead to any inquiries or any proposals that constitute or could reasonably be expected to lead to a proposal or offer for a competing acquisition proposal with any person. In addition, ETP may not grant any waiver or release of any standstill or similar agreement with respect to any units of ETP or any of its subsidiaries. Under the merger agreement, in the event of a potential change by the ETP Board of its recommendation with respect to the proposed merger in light of a superior proposal, ETP must provide ETE with five calendar days’ notice to allow ETE to propose an adjustment to the terms and conditions of the merger agreement. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of ETP from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher per unit market value than the merger consideration, or might result in a potential competing acquirer of ETP proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances.

If the merger agreement is terminated under specified circumstances, including due to an adverse recommendation change having occurred or ETP entering into an agreement relating to a superior proposal, ETP will be required to pay ETE a termination fee of $750.0 million, less any expenses of ETE previously reimbursed by ETP. If the merger agreement is terminated under specified circumstances, including if the ETP unitholder approval is not obtained or if ETP breaches certain of its obligations under the merger agreement, then ETP will be required to pay all of the reasonably documented out-of-pocket expenses incurred by ETE and its affiliates in

 

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connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. Following payment of the termination fee or the reimbursement of expenses, as applicable, ETP will not be obligated to pay any additional expenses incurred by ETE or its affiliates. Please read “Proposal 1: The Merger Agreement—Expenses” and “—Termination Fee.” If such a termination fee is payable, the payment of this fee could have material and adverse consequences to the financial condition and operations of ETP. For a discussion of the restrictions on soliciting or entering into an alternative transaction and the ability of the ETP Board to change its recommendation, see “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals” and “—Change in ETP Board Recommendation.”

If a governmental authority asserts objections to the merger, ETE and ETP may be unable to complete the merger or, in order to do so, ETE and ETP may be required to comply with material restrictions or satisfy material conditions.

The closing of the merger is subject to the condition that there is no law, injunction, judgment or ruling by a governmental authority in effect enjoining, restraining, preventing or prohibiting the merger contemplated by the merger agreement. If a U.S. or foreign governmental authority asserts objections to the merger, ETE or ETP may be required to divest assets or accept other remedies in order to complete the merger. There can be no assurance as to the cost, scope or impact of the actions that may be required to address any governmental authority objections to the merger. If ETE or ETP takes such actions, it could be detrimental to it or to the combined organization following the consummation of the merger. Furthermore, these actions could have the effect of delaying or preventing completion of the proposed merger or imposing additional costs on or limiting the revenues or cash available for distribution of the combined organization following the consummation of the merger. See “Proposal 1: The Merger Agreement—Regulatory Matters.”

Additionally, state attorneys general or other state or local regulators could seek to block, rescind or challenge the merger as they deem necessary or desirable in the public interest at any time, including after completion of the transaction. In addition, in some circumstances, a third party could initiate a private action under antitrust laws challenging or seeking to enjoin or rescind the merger, before or after it is completed. ETE may not prevail and may incur significant costs in defending or settling any action under the antitrust laws.

ETE and ETP are subject to contractual interim operating restrictions while the proposed merger is pending, which could adversely affect each party’s business and operations.

Under the terms of the merger agreement, each of ETE and ETP is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies. Such limitations could negatively affect each party’s businesses and operations prior to the completion of the merger. For a discussion of these restrictions, see “Proposal 1: The Merger Agreement—Conduct of Business Pending the Consummation of the Merger.”

If the merger is approved by ETP common unitholders, the date on which ETP common unitholders will receive the merger consideration is uncertain.

As described in this proxy statement/prospectus, completing the proposed merger is subject to several conditions, not all of which are controllable or waivable by ETE or ETP. Accordingly, if the proposed merger is approved by ETP common unitholders, the date on which ETP common unitholders will receive the merger consideration depends on the completion date of the merger, which is uncertain.

ETP common unitholders will have a reduced ownership in the combined organization after the merger as compared to their ownership of ETP.

When the merger occurs, each ETP common unitholder that receives ETE common units will become a common unitholder of ETE with a percentage ownership of the combined organization that is smaller than such

 

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unitholder’s percentage ownership of ETP prior to the merger. Assuming that the merger had been completed on August 1, 2018, current ETP common unitholders would have owned approximately 56% of the combined partnership based on the number of ETP common units and ETE common units outstanding at that date.

No ruling has been obtained with respect to the U.S. federal income tax consequences of the merger.

No ruling has been or will be requested from the IRS with respect to the U.S. federal income tax consequences of the merger. Instead, ETE and ETP are relying on the opinions of their respective counsel as to the U.S. federal income tax consequences of the merger, and such counsel’s conclusions may not be sustained if challenged by the IRS. Please read “Material U.S. Federal Income Tax Consequences of the Merger.”

The expected U.S. federal income tax consequences of the merger are dependent upon ETE and ETP being treated as partnerships for U.S. federal income tax purposes.

If either ETE or ETP were to be treated as a corporation for U.S. federal income tax purposes, the consequences of the merger would be materially different. If ETE were to be treated as a corporation for U.S. federal income tax purposes, the merger would likely be a fully taxable transaction to ETP common unitholders.

ETP common unitholders could recognize taxable income or gain for U.S. federal income tax purposes as a result of the merger.

For U.S. federal income tax purposes, each holder of ETP common units (other than ETE and its affiliates) will be deemed to contribute its ETP common units to ETE in exchange for ETE common units and the deemed assumption by ETE of each such ETP common unitholder’s share of ETP’s liabilities. The deemed assumption by ETE of such liabilities will trigger gain or loss to such ETP common unitholders to the extent that such amounts are treated as a “disguised sale” of property, rather than as a non-taxable contribution of ETP common units to ETE in exchange for ETE common units. In addition, as a result of the merger, the holders of ETP common units who receive ETE common units will become limited partners of ETE and will be allocated a share of ETE’s nonrecourse liabilities. Each holder of ETP common units will be treated as receiving a deemed cash distribution equal to the net reduction in the amount of nonrecourse liabilities allocated to such ETP common unitholder (as adjusted to take into account any nonrecourse liabilities included in the Section 707 Consideration (as defined below)). If the amount of such deemed cash distribution received by a holder of ETP common units exceeds such ETP common unitholder’s tax basis in ETE common units immediately after the merger, after reducing such tax basis to account for any tax basis allocable to the portion of such unitholder’s ETP common units deemed sold as a result of the receipt of Section 707 Consideration, such ETP common unitholder will recognize gain in an amount equal to such excess. Further, while under current law we generally do not expect the ETP common unitholders to be subject to withholding obligations as a result of the transactions contemplated by the merger agreement, an ETP common unitholder whose ETE common units are deemed to be sold to fulfil its withholding obligations should recognize gain equal to the excess of the fair market value of the ETE common units which are deemed to be sold over the ETP common unitholder’s adjusted tax basis in such ETE common units. The amount and effect of any gain that may be recognized by holders of ETP common units will depend on such unitholder’s particular situation, including the ability of such unitholder to utilize any suspended passive losses.

For additional information, please read “Material U.S. Federal Income Tax Consequences of the Merger—Tax Consequences of the Merger to ETP and ETP Common Unitholders.”

Risks Related to ETP’s Business

You should read and consider the risk factors specific to ETP’s business that will also affect the combined company after completion of the merger. These risks are described in ETP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is incorporated by reference into this proxy statement/prospectus, and in other documents that are incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find Additional Information” for the location of information incorporated by reference into this proxy statement/prospectus.

 

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Risks Related to ETE’s Business

You should read and consider the risk factors specific to ETE’s business that will also affect the combined company after completion of the merger. These risks are described in ETE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is incorporated by reference into this proxy statement/prospectus, and in other documents that are incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find Additional Information” for the location of information incorporated by reference into this proxy statement/prospectus

Tax Risks Related to Owning Common Units in ETE Following the Merger

Following the merger, in addition to the risks described above, holders of ETE common units, for U.S. federal income tax purposes, will continue to be subject to the risks that holders of ETE common units are currently subject to, which are described in ETE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as updated by any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference in this proxy statement/prospectus.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated herein by reference contain forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” or the negative of those terms or other variations of them or comparable terminology. Forward-looking statements are also found under “The Merger—Unaudited Financial Projections of ETE, ETP and the Combined Partnership.” In particular, statements, express or implied, concerning future actions, conditions or events, future operating results, the ability to generate sales, income or cash flow, to realize cost savings or other benefits associated with the merger, to service debt or to make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine actual results are beyond the ability of ETE or ETP to control or predict. Specific factors which could cause actual results to differ from those in the forward-looking statements include:

 

   

the ability to complete the merger;

 

   

the ability to obtain requisite regulatory and unitholder approval and the satisfaction of the other conditions to the consummation of the merger;

 

   

the potential impact of the announcement or consummation of the merger on relationships, including those with employees, suppliers, customers, competitors, lenders and credit rating agencies;

 

   

the volumes transported on ETP’s or ETE’s subsidiaries’ pipelines and gathering systems;

 

   

the level of throughput in ETP’s or ETE’s subsidiaries’ processing and treating facilities;

 

   

the fees ETP’s or ETE’s subsidiaries charge and the margins they realize for their gathering, treating, processing, storage and transportation services;

 

   

the prices and market demand for, and the relationship between, natural gas and NGLs;

 

   

energy prices generally;

 

   

the prices of natural gas and NGLs compared to the price of alternative and competing fuels;

 

   

the general level of petroleum product demand and the availability and price of NGL supplies;

 

   

the level of domestic oil, natural gas and NGL production;

 

   

the availability of imported oil, natural gas and NGLs;

 

   

actions taken by foreign oil and gas producing nations;

 

   

the political and economic stability of petroleum producing nations;

 

   

the effect of weather conditions on demand for oil, natural gas and NGLs;

 

   

availability of local, intrastate and interstate transportation systems;

 

   

the continued ability to find and contract for new sources of natural gas supply;

 

   

availability and marketing of competitive fuels;

 

   

the impact of energy conservation efforts;

 

   

energy efficiencies and technological trends;

 

   

governmental regulation and taxation;

 

   

changes to, and the application of, regulation of tariff rates and operational requirements related to ETP’s or ETE’s subsidiaries’ interstate and intrastate pipelines;

 

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hazards or operating risks incidental to the gathering, treating, processing and transporting of natural gas and NGLs;

 

   

competition from other midstream companies and interstate pipeline companies;

 

   

loss of key personnel;

 

   

loss of key natural gas producers or the providers of fractionation services;

 

   

reductions in the capacity or allocations of third-party pipelines that connect with ETP’s or ETE’s subsidiaries’ pipelines and facilities;

 

   

the effectiveness of risk-management policies and procedures and the ability of ETP’s or ETE’s subsidiaries liquids marketing counterparties to satisfy their financial commitments;

 

   

the nonpayment or nonperformance by ETP’s or ETE’s subsidiaries’ customers;

 

   

regulatory, environmental, political and legal uncertainties that may affect the timing and cost of ETP’s or ETE’s subsidiaries’ internal growth projects, such as their subsidiaries’ construction of additional pipeline systems;

 

   

risks associated with the construction of new pipelines and treating and processing facilities or additions to ETP’s or ETE’s subsidiaries’ existing pipelines and facilities, including difficulties in obtaining permits and rights-of-way or other regulatory approvals and the performance by third-party contractors;

 

   

the availability and cost of capital and ETP’s or ETE’s subsidiaries’ ability to access certain capital sources;

 

   

a deterioration of the credit and capital markets;

 

   

risks associated with the assets and operations of entities in which ETP’s or ETE’s subsidiaries own less than a controlling interests, including risks related to management actions at such entities that ETP’s or ETE’s subsidiaries may not be able to control or exert influence;

 

   

the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to ETP’s and ETE’s financial results and to successfully integrate acquired businesses;

 

   

changes in laws and regulations to which ETP, ETE and their subsidiaries are subject, including tax, environmental, transportation and employment regulations or new interpretations by regulatory agencies concerning such laws and regulations; and

 

   

the costs and effects of legal and administrative proceedings.

Unless expressly stated otherwise, forward-looking statements are based on the expectations and beliefs of the respective managements of ETE and ETP, based on information currently available, concerning future events affecting ETE and ETP. Although ETE and ETP believe that these forward-looking statements are based on reasonable assumptions, they are subject to uncertainties and factors related to ETE’s and ETP’s operations and business environments, all of which are difficult to predict and many of which are beyond ETE’s and ETP’s control. Any or all of the forward-looking statements in this proxy statement/prospectus may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The foregoing list of factors should not be construed to be exhaustive. Many factors mentioned in this proxy statement/prospectus, including the risks outlined under the caption “Risk Factors” contained in ETE’s and ETP’s Exchange Act reports incorporated herein by reference, will be important in determining future results, and actual future results may vary materially. There is no assurance that the actions, events or results of the forward-looking statements will occur, or, if any of them do, when they will occur or what effect they will have on ETE’s and ETP’s results of operations, financial condition, cash flows or distributions. In view of these uncertainties, ETE and ETP caution that investors should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and, except as

 

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required by law, ETE and ETP undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect new information or the occurrence of anticipated or unanticipated events or circumstances.

 

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THE PARTIES

Energy Transfer Equity, L.P.

ETE is a Delaware limited partnership with common units traded on the NYSE under the symbol “ETE.” ETE’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP, Sunoco and USAC, each of which is a publicly traded master limited partnership engaged in diversified energy-related services, and ETE’s ownership of Lake Charles LNG Company, LLC. ETE’s primary cash requirements are for distributions to its partners, general and administrative expenses, debt service requirements and at ETE’s election, capital contributions to ETP and Sunoco in respect of ETE’s general partner interests in ETP and Sunoco, respectively. ETE Merger Sub is a wholly owned subsidiary of ETE.

The address of ETE’s and ETE GP’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

Energy Transfer Partners, L.P.

ETP is a Delaware limited partnership with common units traded on the NYSE under the symbol “ETP.” ETP is one of the largest publicly traded master limited partnerships in the United States in terms of equity market capitalization (approximately $22.2 billion as of June 30, 2018). ETP is managed by its general partner, ETP GP, and ETP GP is managed by its general partner, ETP Managing GP, which is owned by ETE, another publicly traded master limited partnership. The primary activities in which ETP is engaged, all of which are in the United States, are as follows:

 

   

Natural gas operations, including the following:

 

   

natural gas midstream and intrastate transportation and storage; and

 

   

interstate natural gas transportation and storage.

 

   

Crude oil, NGLs and refined product transportation, terminalling services and acquisition and marketing activities, as well as NGL storage and fractionation services.

The address of ETP’s, ETP GP’s and ETP Managing GP’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

Streamline Merger Sub, LLC

ETE Merger Sub is a Delaware limited liability company and a wholly owned subsidiary of ETE. ETE Merger Sub was formed on July 31, 2018 solely for the purpose of consummating the merger and has no operating assets. ETE Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

The address of ETE Merger Sub’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

 

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THE SPECIAL MEETING

ETP is providing this proxy statement/prospectus to its common unitholders in connection with the solicitation of proxies to be voted at the special meeting of common unitholders that ETP has called for, among other things, the purpose of holding a vote upon a proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger, and at any adjournment or postponement thereof. This proxy statement/prospectus constitutes a proxy statement of ETP in connection with the special meeting of ETP common unitholders and a prospectus for ETE in connection with the issuance by ETE of its common units in connection with the merger. This proxy statement/prospectus is first being mailed to ETP’s common unitholders on or about September 11, 2018, and provides ETP common unitholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting of ETP common unitholders.

Date, Time and Place

The special meeting will be held at the Hilton Dallas Park Cities Hotel, 5954 Luther Lane, Dallas, Texas 75225, on October 18, 2018, at 10:00 a.m., local time.

Purpose

At the special meeting, ETP common unitholders will be asked to vote solely on the following proposals:

 

   

Merger proposal: To adopt the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus, and the transactions contemplated thereby, including the merger; and

 

   

Adjournment proposal: To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Recommendation of the ETP Board

The ETP Board recommends, based on the recommendation of the ETP Conflicts Committee, that common unitholders of ETP vote:

 

   

Merger proposal: “FOR” the adoption of the merger agreement and the transactions contemplated thereby, including the merger; and

 

   

Adjournment proposal: “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

The ETP Board has determined that the form, terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger and the ETP LPA amendment, are advisable, fair and reasonable to and in the best interests of ETP and its common unitholders and the ETP Conflicts Committee has determined that the merger agreement and the merger are advisable and fair and reasonable to ETP, and in the best interests of ETP and the unaffiliated ETP common unitholders, and in each case, has approved the merger agreement and the merger. The ETP Board has resolved to recommend approval of the merger agreement and the transactions contemplated thereby to the ETP common unitholders. See “The Merger—Recommendation of the ETP Board; Reasons for the Merger.”

In considering the recommendation of the ETP Board with respect to the merger agreement and the transactions contemplated thereby, you should be aware that some or all of ETP’s directors and executive officers may have interests that are different from, or in addition to, the interests of ETP common unitholders more generally. See “The Merger—Interests of Directors and Executive Officers of ETP in the Merger.”

Record Date; Outstanding Units; Units Entitled to Vote

The record date for the special meeting is September 10, 2018. Only ETP common unitholders of record at the close of business on the record date will be entitled to receive notice of and to vote at the special meeting or any adjournment or postponement of the meeting.

 

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As of the close of business on the record date of September 10, 2018, there were 1,167,186,967 ETP common units outstanding and entitled to vote at the meeting (including 30,681,980 ETP common units held by ETE and its affiliates). Each ETP common unit is entitled to one vote.

Pursuant to the ETP partnership agreement, if at any time any person or group (other than ETP GP and its affiliates, including ETE) beneficially owns 20% or more of any class of ETP units, such person or group loses voting rights on all of its units and such units will not be considered “outstanding.” This loss of voting rights does not apply to (i) any person or group who acquired 20% or more of any class of ETP units from ETP GP or its affiliates, (ii) any person or group who directly or indirectly acquired 20% or more of any class of ETP units from that person or group described in clause (i) provided ETP GP notified such transferee that such loss of voting rights did not apply, or (iii) any person or group who acquired 20% or more of any class of units issued by ETP with the prior approval of the ETP Board.

A complete list of ETP common unitholders entitled to vote at the special meeting will be available for inspection at ETP’s principal executive offices at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225 during regular business hours for a period of no less than 10 days before the special meeting and at the place of the special meeting during the meeting.

Quorum

A quorum of ETP common unitholders represented in person or by proxy at the special meeting is required to vote on adoption of the merger agreement at the special meeting, but not to vote on approval of any adjournment of the meeting. The holders of at least a majority of the outstanding ETP common units must be represented in person or by proxy at the meeting in order to constitute a quorum. Any abstentions and broker non-votes will be counted in determining whether a quorum is present at the special meeting.

Required Vote

To adopt the merger agreement and the transactions contemplated thereby, including the merger, the holders of at least a majority of the outstanding ETP common units and at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders must vote in favor of such adoption. ETP cannot complete the merger unless its common unitholders adopt the merger agreement and the transactions contemplated thereby. Because approval is based on the affirmative vote of at least a majority of the outstanding ETP common units (with and without ETP common units held by ETE and its affiliates), an ETP common unitholder’s failure to vote, an abstention from voting or a broker non-vote will have the same effect as a vote “AGAINST” adoption of the merger proposal.

If a quorum is present at the special meeting, to approve the adjournment of the meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting, holders of at least a majority of the outstanding ETP common units must vote in favor of the adjournment proposal. Therefore, if a quorum is present at the meeting, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as a vote “AGAINST” approval of the adjournment proposal. If a quorum is not present at the special meeting, to approve the adjournment of the meeting, holders of at least a majority of the outstanding ETP common units represented thereat either in person or by proxy must vote in favor of the adjournment proposal. Therefore, if a quorum is not present, abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the adjournment proposal, but an ETP common unitholder’s failure to vote will have no effect on the outcome of the adjournment proposal. In addition, the ETP partnership agreement allows ETP GP to also adjourn the meeting from time to time without the approval of ETP common unitholders.

Common Unit Ownership of and Voting by ETP’s and ETE’s Directors, Executive Officers and Affiliates

As of September 10, 2018, ETP’s directors and executive officers and their affiliates (excluding ETE and its subsidiaries) beneficially owned and had the right to vote 2,719,759 ETP common units at the special meeting,

 

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which represent approximately 0.2% of the ETP common units entitled to vote at the special meeting. Additionally, ETE’s directors and executive officers and their affiliates (including ETE and its subsidiaries) beneficially owned and had the right to vote 30,681,980 ETP common units at the special meeting, which represent approximately 2.6% of the ETP common units entitled to vote at the special meeting. It is expected that ETP’s and ETE’s directors and executive officers will vote their ETP common units “FOR” the adoption of the merger agreement and the transactions contemplated thereby, including the merger, although none of them has entered into any agreement requiring them to do so. Additionally, under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

Voting of Common Units by Holders of Record

If you are entitled to vote at the special meeting and hold your ETP common units in your own name, you can submit a proxy or vote in person by completing a ballot at the special meeting. However, ETP encourages you to submit a proxy before the special meeting even if you plan to attend the special meeting in order to ensure that your ETP common units are voted. A proxy is a legal designation of another person to vote your ETP common units on your behalf. If you hold units in your own name, you may submit a proxy for your ETP common units by:

 

   

calling the toll-free number specified on the enclosed proxy card and following the instructions when prompted;

 

   

accessing the Internet website specified on the enclosed proxy card and following the instructions provided to you; or

 

   

filling out, signing and dating the enclosed proxy card and mailing it in the prepaid envelope included with these proxy materials.

When a common unitholder submits a proxy by telephone or through the Internet, his or her proxy is recorded immediately. ETP encourages its unitholders to submit their proxies using these methods whenever possible. If you submit a proxy by telephone or the Internet, please do not return your proxy card by mail.

All ETP common units represented by each properly executed and valid proxy received before the special meeting will be voted in accordance with the instructions given on the proxy. If an ETP common unitholder executes a proxy card without giving instructions, the ETP common units represented by that proxy card will be voted as the ETP Board recommends, which is:

 

   

Merger proposal: “FOR” the adoption of the merger agreement and the transactions contemplated thereby, including the merger; and

 

   

Adjournment proposal: “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Your vote is important. Accordingly, please submit your proxy by telephone, through the Internet or by mail, whether or not you plan to attend the meeting in person. Proxies must be received by 11:59 p.m., Eastern Time, on October 17, 2018. However, if the special meeting is adjourned to solicit additional proxies, the deadline may be extended.

Voting of Common Units Held in Street Name

If your ETP common units are held in an account at a bank, broker or through another nominee, you must instruct the bank, broker or other nominee on how to vote your ETP common units by following the instructions that the bank, broker or other nominee provides to you with these proxy materials. Most brokers offer the ability for unitholders to submit voting instructions by mail by completing a voting instruction card, by telephone and via the Internet.

 

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If you do not provide voting instructions to your broker, your ETP common units will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is referred to in this proxy statement/prospectus and in general as a broker non-vote. In these cases, the bank, broker or other nominee can register your ETP common units as being present at the special meeting for purposes of determining a quorum, but will not be able to vote your ETP common units on those matters for which specific authorization is required. Under the current rules of the NYSE, brokers do not have discretionary authority to vote on any of the proposals, including the merger proposal. A broker non-vote of an ETP common unit will have the same effect as a vote “AGAINST” the merger proposal and the adjournment proposal.

If you hold ETP common units through a bank, broker or other nominee and wish to vote your ETP common units in person at the special meeting, you must obtain a proxy from your bank, broker or other nominee and present it to the inspector of election with your ballot when you vote at the special meeting.

Revocability of Proxies; Changing Your Vote

You may revoke your proxy and/or change your voting instructions at any time before your proxy is voted at the special meeting. If you are an ETP common unitholder of record, you can do this by:

 

   

sending a written notice to Energy Transfer Partners, L.P. at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, Attention: Corporate Secretary, that bears a date later than the date of the proxy and is received prior to the special meeting and states that you revoke your proxy;

 

   

submitting a valid proxy by mail, telephone or internet that bears a date later than the date of the proxy, but no later than the telephone/internet deadline, and is received prior to the special meeting; or

 

   

attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your ETP common units through a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee in order to revoke your proxy or change your voting instructions.

Solicitation of Proxies

This proxy statement/prospectus is furnished in connection with the solicitation of proxies by the ETP Board to be voted at the special meeting. ETP will bear all costs and expenses in connection with the solicitation of proxies. ETP has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the meeting and ETP estimates it will pay MacKenzie Partners, Inc. a fee of approximately $50,000 for these services. ETP has also agreed to reimburse MacKenzie Partners, Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify MacKenzie Partners, Inc. against certain losses, costs and expenses. In addition, ETP may reimburse brokerage firms and other persons representing beneficial owners of ETP common units for their reasonable expenses in forwarding solicitation materials to such beneficial owners. Proxies may also be solicited by certain of ETP’s directors, officers and employees by telephone, electronic mail, letter, facsimile or in person, but no additional compensation will be paid to them.

Common Unitholders Should Not Send Unit Certificates with Their Proxies.

ETP common unitholders should not send in their unit certificates at this time. After completion of the merger, ETE’s exchange agent will send you a letter of transmittal and instructions for exchanging your ETP common units for the merger consideration.

No Other Business

Under the ETP partnership agreement, the business to be conducted at the special meeting will be limited to the purposes stated in the notice to ETP common unitholders provided with this proxy statement/prospectus.

 

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Adjournments

Adjournments may be made for the purpose of, among other things, soliciting additional proxies. If a quorum exists, an adjournment may be made from time to time with approval of the holders of at least a majority of the outstanding ETP common units. If a quorum does not exist, an adjournment may be made from time to time with the approval of the holders of at least a majority of the ETP common units entitled to vote at such meeting and represented thereat either in person or by proxy. ETP is not required to notify common unitholders of any adjournment of 45 days or less if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At any adjourned meeting, ETP may transact any business that it might have transacted at the original meeting, provided that a quorum is present at such adjourned meeting. Proxies submitted by ETP common unitholders for use at the special meeting will be used at any adjournment or postponement of the meeting. References to the special meeting in this proxy statement/prospectus are to such special meeting as adjourned or postponed.

Assistance

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact MacKenzie Partners, Inc. toll-free at (800) 322-2885 (banks and brokers call collect at (212) 929-5500).

 

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THE MERGER

This section of the proxy statement/prospectus describes the material aspects of the proposed merger. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the documents incorporated herein by reference, including the full text of the merger agreement, for a more complete understanding of the merger. A copy of the merger agreement is attached as Annex A hereto. In addition, important business and financial information about each of ETE and ETP is included in or incorporated into this proxy statement/prospectus by reference. See “Where You Can Find More Information.”

Effect of the Merger

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for the merger of ETE Merger Sub with and into ETP. ETP, which is sometimes referred to following the merger as the surviving entity, will survive the merger, and the separate limited liability company existence of ETE Merger Sub will cease. As a result of the merger and the transactions contemplated thereby, ETE will acquire all of the outstanding ETP common units that ETE and its subsidiaries do not already own. After the completion of the merger, the certificate of limited partnership of ETP in effect immediately prior to the effective time, as amended to reflect a change in its name to “Energy Transfer Operating, L.P.,” will be the certificate of limited partnership of the surviving entity, until amended in accordance with its terms and applicable law. In addition, immediately prior to the effective time, the ETP partnership agreement will be amended pursuant to the ETP LPA amendment to, among other things, reflect the conversion of ETP’s incentive distribution rights into ETP common units, the cancellation of the Class I Units and Class J Units, and the conversion of the economic general partner interest in ETP to a non-economic general partner interest in ETP and ETP common units. At the effective time, the ETP partnership agreement, as amended by the ETP LPA amendment, will remain unchanged and will be the agreement of limited partnership of the surviving entity from and after the effective time, until amended in accordance with its terms and applicable law.

The merger agreement provides that, at the effective time, each ETP common unit issued and outstanding as of immediately prior to the effective time (other than any ETP common units owned by ETE or any subsidiary of ETE) will be converted into the right to receive 1.28 ETE common units. Each ETP common unit owned by ETE and its subsidiaries and issued and outstanding immediately prior to the effective time (including any ETP common units issued in connection with the pre-closing transactions described below) will remain unchanged and remain outstanding. In addition, each Class E Unit, Class G Unit, Class K Unit of ETP, as well as each Series A Preferred Unit, Series B Preferred Unit, Series C Preferred Unit and Series D Preferred Unit of ETP, that is issued and outstanding as of immediately prior to the effective time will, at the effective time, continue to be issued and outstanding and represent limited partner interests in ETP.

Because the exchange ratio was fixed at the time the merger agreement was executed and because the market value of ETE common units and ETP common units will fluctuate prior to the consummation of the merger, ETP common unitholders cannot be sure of the value of the merger consideration they will receive relative to the value of ETP common units that they are exchanging. For example, decreases in the market value of ETE common units will negatively affect the value of the merger consideration that ETP common unitholders receive, and increases in the market value of ETP common units may mean that the merger consideration that such unitholders receive will be worth less than the market value of the ETP common units that they are exchanging. See “Risk Factors—Risk Factors Relating to the Merger.”

ETE will not issue any fractional units in the merger. Instead, each holder of ETP common units that are converted pursuant to the merger agreement who otherwise would have received a fraction of an ETE common unit will be entitled to receive a whole ETE common unit.

At the effective time, each unvested award of ETP restricted units or ETP restricted phantom units outstanding immediately prior to the effective time will, by virtue of the merger and without any action on the

 

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part of the holder thereof, cease to relate to or represent a right to receive ETP common units and will be converted into the right to receive a comparable restricted equity award with respect to ETE common units, on the same terms and conditions as were applicable to the corresponding award of ETP (including the right to receive distribution equivalents with respect to such award), except that the number of ETE common units covered by each such comparable award will be equal to the number of ETP common units subject to the corresponding award of ETP multiplied by the exchange ratio, rounded up to the nearest whole unit.

Pre-Closing Transactions

Subject to the conditions to the merger being satisfied or waived (other than conditions that by their nature are to be satisfied at closing, but subject to the satisfaction or waiver of those conditions), ETE, ETP Managing GP and ETP will, and will cause their respective affiliates to, cause the following pre-closing transactions to occur immediately prior to the effective time in the order set forth below:

 

   

ETE will contribute 2,263,158 Sunoco common units to ETP in exchange for 2,874,275 ETP common units;

 

   

ETP Managing GP will contribute 100% of the limited liability company interests in Sunoco GP to ETP in exchange for 42,812,389 ETP common units;

 

   

ETP Managing GP will contribute 12,466,912 USAC common units and 100% of the limited liability company interests in USA Compression GP to ETP in exchange for 16,134,903 ETP common units;

 

   

ETE will contribute the Lake Charles LNG Interests to ETP in exchange for 37,557,815 ETP common units;

 

   

ETE and ETP Managing GP will cause the conversion of the incentive distribution rights in ETP into, or cause ETP to purchase such incentive distribution rights in exchange for, 1,168,205,710 ETP common units;

 

   

ETE and ETP Managing GP will cause the cancellation of the Class I Units and Class J Units;

 

   

ETP Managing GP will cause the conversion of the approximate 1.0% economic general partner interest in ETP to a non-economic general partner interest in ETP and cause ETP to issue 18,448,341 ETP common units to ETP GP; and

 

   

in connection with the actions contemplated in the fifth, sixth and seventh bullets above, the ETP partnership agreement will be amended as set forth in the ETP LPA amendment attached as Annex C to this proxy statement/prospectus.

In connection with the closing of the merger, ETE has agreed to issue ETE Class A Units to ETE GP. The number of ETE Class A Units to be issued to ETE GP will allow ETE GP and its affiliates to retain their current voting interest in ETE following the completion of the merger. The ETE Class A Units will be entitled to vote together with the ETE common units, as a single class, on any matter for which the holders of ETE common units are entitled to vote, except as required by law. Additionally, without the approval of 66 2/3% of the ETE Class A Units, ETE may not take any action that disproportionately or materially adversely affects the rights, preferences or privileges of the ETE Class A Units or amend the terms thereof. Following the closing of the merger, for so long as Kelcy Warren is an officer or a director of ETE GP, upon the issuance by ETE of additional ETE common units or any securities that have voting rights that are pari passu with the ETE common units, ETE will issue to the holder of ETE Class A Units a number of additional ETE Class A Units such that the holder maintains a voting interest in ETE with respect to its ETE Class A Units that is identical to its voting interest in ETE with respect to its ETE Class A Units prior to such issuance. The ETE Class A Units will not be entitled to distributions and otherwise have no economic attributes, except that the ETE Class A Units in the aggregate will be entitled to an aggregate $100 distribution prior and in preference to any distribution of assets to the holders of other classes or series of securities of ETE upon any liquidation, dissolution or winding up of ETE. The ETE Class A Units are not convertible into, or exchangeable for, ETE common units. Without the prior

 

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approval of a conflicts committee of the ETE Board, the ETE Class A Units may not be transferred to any person or entity, other than to Kelcy Warren, Ray Davis or to any trust, family partnership or family limited liability company the sole beneficiaries, partners or members of which are Kelcy Warren, Ray Davis or their respective relatives.

Background of the Merger

The senior management, the ETE Board and the ETP Board regularly review operational and strategic opportunities to maximize value for their respective investors. In connection with these reviews, the management and boards of directors of ETE and ETP from time to time evaluate potential transactions that would further their respective strategic objectives. Over the last year, ETE and ETP have considered potential simplification transactions in an effort to reduce ETP’s cost of capital in order to increase unitholder value for each of ETE and ETP.

During this period, management of ETE and ETP made public statements regarding their desire to pursue such a transaction when management believed that these objectives could be achieved. Management of ETE and ETP also discussed with the ETE Board and the ETP Board, respectively, that management was continuously evaluating the prospect of pursuing a simplification transaction. As the retention of investment grade ratings from the three credit rating agencies is a critical component of the overall cost of capital for funding capital projects by ETP, the consideration of a simplification transaction by ETE and ETP was dependent upon management’s belief that the combined partnership would be able to maintain the investment grade ratings currently applicable to ETP’s public debt. Management of ETE and ETP considered several alternative structures for a potential simplification before more seriously considering the acquisition of ETP by ETE based on a range of exchange ratios that could have the effect of providing to ETP common unitholders a premium to the current trading price of the ETP common units while reducing the aggregate amount of cash distributions that the combined partnership would make to its unitholders following a combination, assuming the combined partnership continued to pay distributions at the same rate ETE paid distributions prior to a combination. Management of ETE and ETP considered this structure as the most attractive alternative for achieving the objective of decreasing the combined partnership’s equity cost of capital and believed the structure would allow the combined partnership to satisfy the rating agency criteria and achieve an investment grade rating following the transaction. Based on these considerations, management of ETE and ETP determined that it would be appropriate for this transaction structure to be presented to the ETE Board and the ETP Board for their consideration.

On July 7, 2018, ETE contacted a representative of Latham & Watkins LLP (“Latham”) regarding the potential engagement of Latham as legal advisor to the ETE Board in considering potential simplification transactions.

On July 13, 2018, the ETE Board convened for an informational meeting with Thomas P. Mason, Executive Vice President and General Counsel of ETE, Thomas E. Long, Group Chief Financial Officer of ETE, and other members of ETE management attending as guests. At this meeting, the ETE Board and ETE management discussed various strategic alternatives that ETE management had been considering over the past several months to address the constraints on ETP’s cost of capital. In addition, the ETE Board discussed the necessity for ETE to establish a conflicts committee in the future to evaluate potential conflicts of interest in any proposed transaction.

On July 17, 2018, ETP contacted a representative of Vinson & Elkins L.L.P. (“V&E”) regarding the potential engagement of V&E as legal advisor to ETP in connection with a potential simplification transaction.

On July 21, 2018, the ETE Board held a meeting to discuss midstream market trends and various strategic alternatives with ETE senior management to simplify the Energy Transfer organizational structure. In particular, the ETE Board discussed the following alternatives: (i) an acquisition of ETP by ETE in a unit-for-unit transaction; (ii) an acquisition of ETE by ETP in a unit-for-unit transaction; (iii) a transaction in which ETE would convert its economic general partner interest into a non-economic general partner interest and agree to the cancellation of its

 

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incentive distribution rights in ETP, in exchange for ETP common units; and (iv) a transaction in which ETE would agree to a reset of its incentive distribution rights in ETP, in exchange for ETP common units.

On July 24, 2018, the ETE Board held a meeting to discuss further the strategic alternatives considered at the meeting on July 21, 2018. After such discussion, the ETE Board determined that the potential acquisition by ETE of ETP would be the most beneficial alternative to both ETE and ETP, and authorized Kelcy Warren to submit a written proposal to ETP. The ETE Board also determined to establish the ETE Conflicts Committee and appointed as members Richard Brannon and Steven Anderson. The ETE Board delegated to the ETE Conflicts Committee the authority to, among other things, (i) review and evaluate the proposed transaction, (ii) negotiate the terms and conditions of the proposed transaction, and (iii) determine whether to approve the proposed transaction and to recommend approval of the proposed transaction to the ETE Board. The ETE Board also delegated to the Audit and Conflicts Committee of the ETE Board (the “ETE A&C Committee”), comprised of Mr. Brannon, Mr. Anderson and Mr. William Williams, the authority to review and evaluate the proposed transaction and to determine whether to approve the proposed transaction and recommend approval of the proposed transaction to the ETE Board. The ETE Board did not delegate to either the ETE Conflicts Committee or the ETE A&C Committee the authority to pursue alternative transactions with third parties or other strategic alternatives to the proposed transaction.

Following the ETE Board meeting, on July 24, 2018, Mr. Warren, as Chairman of the ETE Board, sent a written proposal to the ETP Board, which contemplated ETE’s acquisition of ETP in a unit-for-unit transaction, in which the ETP common units, other than those held by ETE and its subsidiaries, would each convert into the right to receive 1.194 ETE common units for each ETP common unit, representing an approximate 5.0% premium to ETP’s closing common unit price on July 23, 2018 (the “Initial ETE Offer”). The Initial ETE Offer also described ETE’s belief that the most advantageous transaction to achieve the desired objective of lowering ETP’s equity cost of capital and strengthening its balance sheet was the acquisition of ETP by ETE in an all-unit transaction, and that ETE intended to use the cash distribution savings as a result of the transaction to reduce the debt of the combined partnership and to fund capital projects.

Also on July 24, 2018, following the ETE Board meeting, the ETE Conflicts Committee held a telephonic meeting with Mr. Mason and representatives of Latham to discuss further the ETE Conflicts Committee’s role in the transaction, as well as potential legal advisors to the ETE Conflicts Committee.

Later in the day on July 24, 2018, the ETE Conflicts Committee held a telephonic meeting with representatives of Potter Anderson & Corroon LLP (“Potter Anderson”) and Latham. On the call, representatives of Potter Anderson discussed with the ETE Conflicts Committee their qualifications to serve as legal counsel to the ETE Conflicts Committee and prior engagements with the Energy Transfer family of companies. Latham then provided a brief overview of the proposed transaction, as well as timing considerations, following which the ETE Conflicts Committee dismissed the Latham representatives from the call. The ETE Conflicts Committee discussed with representatives of Potter Anderson the resolutions setting forth the ETE Conflicts Committee’s authority, and also discussed potential financial advisors that the ETE Conflicts Committee might engage for the proposed transaction. The ETE Conflicts Committee determined to engage Potter Anderson as legal counsel to the ETE Conflicts Committee. An engagement letter detailing the terms of Potter Anderson’s engagement was subsequently executed. The ETE Conflicts Committee also determined and authorized Potter Anderson to contact Citigroup Global Markets Inc. (“Citi”) in order to evaluate whether to engage Citi as the ETE Conflicts Committee’s financial advisor for the proposed transaction. After subsequent discussions among members of the ETE Conflicts Committee, representatives of Potter Anderson, and representatives of Citi, the ETE Conflicts Committee determined, based on, among other things, Citi’s reputation, experience and familiarity with ETE and ETP, to engage Citi as financial advisor to the ETE Conflicts Committee. In connection with its engagement, Citi disclosed to the ETE Conflicts Committee certain information regarding Citi’s material investment banking relationships with ETE, ETP, Sunoco and USAC during the prior two-year period.

 

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Also on July 24, 2018, following receipt of the Initial ETE Offer, the ETP Board convened by teleconference with Mr. Mason, James M. Wright, General Counsel of ETP, W. Jason Healy, Associate General Counsel of ETP, and representatives of V&E to discuss the Initial ETE Offer. After review of the Initial ETE Offer and discussion with counsel, the ETP Board determined that, in light of the actual and potential conflicts of interest between ETP and the holders of ETP common units, other than ETP common units held by ETE and its affiliates, on the one hand, and ETP GP and its affiliates, on the other hand, the Initial ETE Offer and any transaction similar to the one proposed in the Initial ETE Offer should be subject to the evaluation, negotiation and approval of a committee of the ETP Board satisfying the requirements of a “Conflicts Committee” as defined in the ETP partnership agreement. After reviewing the requirements for Conflicts Committee service in the ETP partnership agreement and inquiring of Michael K. Grimm, David K. Skidmore and W. Brett Smith as to their eligibility to serve on the ETP Conflicts Committee, the ETP Board unanimously adopted resolutions creating an ETP Conflicts Committee and appointing Messrs. Grimm, Skidmore and Smith to the ETP Conflicts Committee, and delegated to the ETP Conflicts Committee the authority to (i) consider, review and evaluate any potential conflicts arising in connection with the proposed transaction and any related arrangements, (ii) consider, review, evaluate and negotiate (or delegate to any person the authority to negotiate) the terms and conditions of, and if so determined by the ETP Conflicts Committee, approve, the proposed transaction and any related arrangements, (iii) make any recommendations to the ETP Board regarding the proposed transaction and any related arrangements in light of such potential conflicts, and (iv) make any recommendations to the ETP unitholders regarding the proposed transaction and any related arrangements in light of such potential conflicts. In connection with determining that each of Messrs. Grimm, Skidmore and Smith satisfied the requirements to serve on the ETP Conflicts Committee under the ETP partnership agreement, the ETP Board discussed and considered, among other things, the fact that each of Messrs. Skidmore and Smith owned common units in ETE (as further described under “Interests of Directors and Executive Officers of ETP in the Merger—Economic Interests of ETP Managing GP Officers and Directors in ETP and ETE”) and that Mr. Smith had been a director of Sunoco from March 16, 2016 to March 6, 2018. The ETP Board did not authorize the ETP Conflicts Committee to pursue alternative transactions with third parties or other strategic alternatives to the proposed transaction.

Immediately following the ETP Board meeting, the ETP Conflicts Committee held an organizational meeting with representatives of ETP and V&E in attendance. The ETP Conflicts Committee discussed potential financial and legal advisors that could provide advice and analysis in connection with the ETP Conflicts Committee’s evaluation of the proposed transaction and their experiences with advisors in connection with certain previous transactions. Mr. Wright advised the ETP Conflicts Committee that Potter Anderson and Citi were expected to be engaged by the ETE Conflicts Committee. Following discussion and based in part on the prior experience of the ETP Conflicts Committee with Barclays and Richards Layton & Finger, P.A. (“RLF”), the ETP Conflicts Committee determined to seek to engage Barclays and RLF as its financial and legal advisors in connection with the proposed transaction, subject to reviewing information about the relationships between each of Barclays and RLF and the Energy Transfer family of companies and the negotiation of mutually acceptable engagement letters.

Following the ETP Conflicts Committee meeting on July 24, 2018, Mr. Grimm had a telephonic discussion with a representative of RLF to discuss its potential engagement as legal counsel to the ETP Conflicts Committee and with representatives of Barclays to discuss its potential engagement as financial advisor to the ETP Conflicts Committee.

Later on July 24, 2018, the ETP Conflicts Committee held an organizational meeting with representatives of ETP, V&E, Barclays and RLF in attendance. The ETP Conflicts Committee asked Barclays and RLF to provide information regarding their relationships with the Energy Transfer family of companies. The RLF representatives also explained certain responsibilities of the ETP Conflicts Committee in connection with the proposed transaction and the process for considering the proposed transaction. As further described under “The Merger—Opinion of the Financial Advisor to the ETP Conflicts Committee—General,” beginning on page 65 of this proxy statement/prospectus, on July 25, 2018, Barclays informed the ETP Conflicts Committee and RLF that as part of Barclays’ ongoing investment banking coverage efforts for ETE, Barclays employees, including certain members

 

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of the Barclays team which was proposing to advise (and did advise) the ETP Conflicts Committee in the transaction, had regularly met with ETE to discuss strategic and financing alternatives potentially available to ETE, including discussions regarding a potential business combination with ETP, and provided ETE with pitch materials and analyses with respect to such a possible combination. Barclays also provided written disclosure to the ETP Conflicts Committee and RLF, which was subsequently updated on August 1, 2018, as to the nature of its relationship and engagements for ETP, ETE, and their affiliates and the amount and nature of the fees it received from such parties over the previous two years.

On July 25, 2018, representatives of V&E sent RLF an overview of a proposed structure and transaction steps for the transaction, which had been prepared by ETE and ETP management in consultation with representatives of V&E and Latham.

Also on July 25, 2018, the members of the ETP Conflicts Committee and the ETE Conflicts Committee, together with representatives of ETP, V&E, RLF, Barclays, ETE, Latham, Potter Anderson, and Citi, attended a meeting at which Mr. Long, Dylan Bramhall, Senior Vice President-Finance and Treasurer of ETP, and Mr. Mason reviewed with the group ETE’s and ETP’s business and operations, including a review of each of ETP’s and ETE’s business segments and future expected growth projects. The representatives of ETP and ETE also reviewed financial projections for the respective companies and addressed questions from the ETP Conflicts Committee, ETE Conflicts Committee and their respective advisors.

On July 26, 2018, Latham provided a draft merger agreement to Potter Anderson for review on behalf of the ETE Conflicts Committee. On July 27, 2018, Latham provided a draft merger agreement to V&E that reflected Potter Anderson’s input. The draft merger agreement did not address the economic terms of the proposed merger.

On July 28, 2018, the ETE Conflicts Committee held a telephonic meeting with representatives of Potter Anderson and Citi. At the ETE Conflicts Committee’s request, Citi provided an overview of, among other things, general trends in the midstream oil and gas industry, certain investor perspectives with respect to master limited partnerships, simplification transactions undertaken by certain midstream companies and the rationale for and market reactions to such transactions.

On July 29, 2018, the ETP Conflicts Committee held a meeting with representatives of ETP, V&E and RLF. The ETP Conflicts Committee reviewed information provided by Barclays regarding its relationships with ETE, ETP and the other members of the Energy Transfer family of companies, which information is more fully described under “Opinion of the Financial Advisor to the ETP Conflicts Committee—General.” The ETP Conflicts Committee had discussions regarding such relationships, as well as Barclays’ experience and qualifications. ETP management’s expressed confidence in Barclays, Barclays’ familiarity with the Energy Transfer family of companies and the fees requested by Barclays. After considering all the factors and circumstances—including Barclays’ relationships with the Energy Transfer family of companies and Barclays’ experience and qualifications to provide high-quality financial advice to the ETP Conflicts Committee in connection with its consideration of the proposed transaction—the ETP Conflicts Committee determined to engage Barclays as its financial advisor. An engagement letter detailing the terms of Barclays’ engagement was subsequently executed. The ETP Conflicts Committee also reviewed information provided by RLF regarding its relationships with the Energy Transfer family of companies and had discussions regarding the experience and qualifications of RLF and its familiarity with the Energy Transfer family of companies. The ETP Conflicts Committee determined that RLF had the requisite experience and qualifications to provide high-quality legal advice to the ETP Conflicts Committee in connection with its consideration of the proposed transaction and determined to engage RLF as its legal advisor. An engagement letter detailing the terms of RLF’s engagement was subsequently executed.

Later on July 29, 2018, the ETP Conflicts Committee held a meeting with representatives of Barclays and RLF. Barclays made a presentation to the ETP Conflicts Committee regarding, among other things, (i) the recent performance of ETE and ETP, (ii) certain potential alternatives for ETP to the proposed transaction, and

 

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(iii) Barclays’ preliminary financial analysis of the proposed transaction. The potential alternatives to the proposed transaction presented to the ETP Conflicts Committee included (i) ETP maintaining the status quo, (ii) ETP acquiring the outstanding equity of ETE or the incentive distribution rights in ETP held by ETE, or (iii) ETP decreasing the distribution on its common units. The ETP Conflicts Committee and its advisors also discussed the rationale for the proposed transaction from the perspective of ETP and the unaffiliated ETP common unitholders, the financial projections provided by management and the growth projects included in management’s financial projections.

On July 30, 2018, the ETE Conflicts Committee held a meeting with representatives of Potter Anderson and Citi. Among other things discussed during the meeting were potential benefits of and certain considerations regarding certain alternatives to the proposed transaction, including ETP acquiring ETE, ETP acquiring the incentive distribution rights in ETP held by ETE, and a resetting of the incentive distribution rights in exchange for common units of ETP. Citi also discussed certain financial matters relating to ETP and ETE and preliminary financial perspectives regarding the proposed transaction. Also during the meeting, Potter Anderson reviewed with the ETE Conflicts Committee their duties and obligations in connection with the proposed transaction.

On July 30, 2018, the ETP Conflicts Committee held a series of meetings with representatives of Barclays and RLF to discuss the proposed transaction. The ETP Conflicts Committee also invited representatives of ETE and ETP and representatives of V&E to attend portions of its meetings to solicit their views on, among other things, (i) the financial projections provided by management and potential upside or downside scenarios thereto, (ii) potential alternatives for ETP to the proposed transaction, and (iii) potential investor and rating agency reactions to the proposed transaction. In executive session with representatives of Barclays and RLF in attendance, the ETP Conflicts Committee engaged in further consideration of Barclays’ preliminary financial analysis of the proposed transaction and the alternatives for ETP to the proposed transaction, as well as the potential reaction of the unaffiliated ETP common unitholders to the proposed transaction. Following consideration, the ETP Conflicts Committee concluded that it would make a counteroffer to ETE in which ETE would acquire the ETP common units not already held by ETE and its subsidiaries in a unit-for-unit exchange at an exchange ratio of 1.42 ETE common units for each ETP common unit, representing an approximate 24.8% premium based on closing prices for ETP common units and ETE common units on July 23, 2018, and the proposed transaction would be conditioned on obtaining the approval of holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders (the “ETP Counter”). The ETP Conflicts Committee then delivered a letter to the ETE Conflicts Committee detailing the ETP Counter.

Following the receipt of the ETP Counter on July 30, 2018, the ETE Conflicts Committee held a series of meetings with representatives of Potter Anderson and Citi to discuss the ETP Counter. Among other things, the ETE Conflicts Committee discussed with its advisors the proposed exchange ratio and other aspects of the ETP Counter, including the request that the proposed transaction would be conditioned on obtaining the approval of holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders. In addition, the ETE Conflicts Committee reviewed certain updated information previously provided by Citi to the ETE Conflicts Committee regarding Citi’s material investment banking relationships with ETE, ETP, Sunoco and USAC during the prior two-year period. Following discussion and consideration, the ETE Conflicts Committee determined to make a counter proposal for ETE to acquire ETP in a unit-for-unit exchange at an exchange ratio of 1.222 ETE common units for each ETP common unit, representing an approximate 7.3% premium based on the closing prices for the common units of each of ETP and ETE on July 23, 2018, and also accepting the ETP Conflicts Committee’s request that the transaction be conditioned on obtaining the approval of holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders (the “Second ETE Offer”). Later in the day on July 30, 2018, the ETE Conflicts Committee delivered a letter to the ETP Conflicts Committee detailing the Second ETE Offer.

Also throughout the day on July 30, 2018, senior management of ETP and ETE discussed proposed transaction details and due diligence matters with representatives of the ETP Conflicts Committee’s and the ETE Conflicts Committee’s respective legal and financial advisors. In addition, representatives of V&E and RLF met

 

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in person to discuss issues identified in the initial draft of the merger agreement and related matters. Representatives of V&E also had preliminary discussions with representatives of Latham regarding provisions in the merger agreement, including (i) the restrictions on ETP’s and ETE’s ability to engage in certain activities after the execution of the merger agreement and prior to closing, (ii) the representations and warranties given by ETP and ETE, particularly in light of the overlapping management and knowledge of the two entities, (iii) the inclusion of each of the general partners of ETP and ETE as parties to the merger agreement, and (iv) the remedies and termination provisions.

Following receipt of the Second ETE Offer, in the evening of July 30, 2018, the ETP Conflicts Committee held a meeting with representatives of Barclays and RLF to discuss the proposed transaction and the Second ETE Offer made by the ETE Conflicts Committee. Following consideration of the Second ETE Offer and Barclays’ preliminary financial analysis of the proposed transaction and the Second ETE Offer, the ETP Conflicts Committee concluded that it would make a counteroffer to ETE in which ETE would acquire the ETP common units not already held by ETE and its subsidiaries in a unit-for-unit exchange at an exchange ratio of 1.4 ETE common units for each ETP common unit, representing an approximate 23.1% premium based on closing prices for ETP common units and ETE common units on July 23, 2018 (the “Second ETP Counter”). The ETP Conflicts Committee noted that an agreement had been reached that the proposed transaction would be conditioned on obtaining the approval of holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders.

On the morning of July 31, 2018, RLF delivered a letter containing the Second ETP Counter to the ETE Conflicts Committee as instructed by the ETP Conflicts Committee. Thereafter, the ETP Conflicts Committee held a series of meetings with representatives of Barclays and RLF to discuss the proposed transaction. The ETP Conflicts Committee received a presentation from RLF regarding the duties and obligations of the ETP Conflicts Committee in connection with the proposed transaction. In addition, the ETP Conflicts Committee invited representatives of V&E to attend a portion of its meetings to participate in discussions regarding the terms of the proposed merger agreement and certain changes to the proposed merger agreement prepared by V&E and RLF. Following discussion, the ETP Conflicts Committee authorized V&E and RLF to send a revised version of the merger agreement to Latham, Potter Anderson, and ETE. The draft merger agreement included the requirement that holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders must vote to approve the transaction.

Also on the morning of July 31, 2018, the ETE Board held a meeting with senior management and representatives of Latham present. During the meeting, Messrs. Long and Mason provided the ETE Board with an update on the transaction, while Mr. Brannon provided an update on the negotiations described above between the ETE Conflicts Committee and the ETP Conflicts Committee. Mr. Mason and a representative from Latham also led the ETE Board through a discussion regarding the dilution to the equity ownership of ETE GP and its affiliates as a result of the proposed transaction with ETP, and provided the ETE Board with an overview of ETE’s and ETP’s financial performance under the direct and indirect control of ETE GP, the increased activism in the energy industry and the control provisions in the existing ETE partnership agreement. Mr. Mason also discussed the contractual preemptive right of ETE GP set forth in the ETE partnership agreement that provides ETE GP the right to acquire, in connection with any issuance of common units by ETE, additional ETE common units to allow ETE GP to maintain the percentage interest of ETE GP and its affiliates of ETE’s outstanding common units prior to any such transaction. After such discussion, Mr. Warren proposed to the ETE Board that, as part of the proposed transaction, ETE issue a new security, the ETE Class A Units, to ETE GP that would, among other things, enable ETE GP and its affiliates to retain their current voting percentage interests in ETE following the consummation of the proposed merger and require a separate class vote of the ETE Class A Units in order to remove ETE’s general partner. Mr. Warren, the owner of a controlling interest in ETE GP, stated that he would not be inclined to support the proposed transaction without the issuance of the ETE Class A Units. Mr. Mason provided additional detail regarding the ETE Class A Units, and after a discussion with the ETE Board, the ETE Board authorized Mr. Mason to inform the ETE Conflicts Committee and the ETP Conflicts Committee of the proposal to issue ETE Class A Units to ETE GP and the terms of such units.

 

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Also on the morning of July 31, 2018, Mr. Mason and representatives of Latham provided to the ETE Conflicts Committee, the ETP Conflicts Committee and their respective legal advisors a written proposal regarding the issuance of ETE Class A Units to ETE GP. As set forth in the proposal, the ETE Class A Units would be entitled to a voting interest (the “Class A Unit voting interest”) that together with the voting interest held by ETE GP and its affiliates immediately following the proposed merger is equal to the voting interest of ETE GP and its affiliates prior to the proposed merger. The proposed terms of the ETE Class A Units provided that the Class A units would generally vote together with the ETE common units as a single class but would also be entitled to a separate class vote on any vote to remove ETE GP as the general partner. The proposal also specified that, upon the issuance by ETE of any common units or other securities with voting rights pari passu with the common units, ETE would be required to issue additional ETE Class A Units to the Class A unitholders such that the ETE Class A Units would retain the Class A Unit voting interest. Mr. Mason also explained that the ETE Class A Units would generally not be transferable by the holder(s) without the consent of the ETE Conflicts Committee unless a transfer was to an affiliate of such holder(s).

Subsequent to the ETE Board meeting on July 31, 2018, the ETE Conflicts Committee met with representatives of Potter Anderson and Citi to discuss the Second ETP Counter. The ETE Conflicts Committee and its advisors discussed, among other things, the proposed exchange ratio of 1.400 ETE common units for each ETP common unit not already held by ETE and its subsidiaries. After discussion and consideration, the ETE Conflicts Committee determined to make a counter proposal for ETE to acquire ETP in a unit-for-unit exchange at an exchange ratio of 1.234 ETE common units for each ETP common unit not already held by ETE and its subsidiaries, representing an approximate 8.5% premium based on the closing prices for ETP common units and ETE common units on July 23, 2018 (the “Third ETE Offer”). The ETE Conflicts Committee also discussed with representatives of Potter Anderson and Citi the proposal regarding the issuance of ETE Class A Units to ETE GP. Subsequently, the ETE Conflicts Committee delivered a letter to the ETP Conflicts Committee detailing the Third ETE Offer. After the ETE Conflicts Committee meeting, the ETE Conflicts Committee, together with its advisors, met with Mr. Mason and representatives of Latham to discuss the proposed new ETE Class A Units.

Also on the morning of July 31, 2018, following receipt of the Third ETE Offer, the ETP Conflicts Committee held a meeting with representatives of Barclays and RLF to discuss the proposed transaction and the Third ETE Offer made by the ETE Conflicts Committee. The ETP Conflicts Committee considered the terms of the Third ETE Offer and financial and legal analysis provided by its advisors. The ETP Conflicts Committee discussed, among other things, the effect of the proposed transaction on the amount of distributions that unaffiliated ETP common unitholders could expect to receive on a quarterly basis, the potential benefits and impact of an exchange ratio that provided unaffiliated ETP common unitholders with more ETE common units and the condition that the transaction be approved by the holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders. Following discussion, the ETP Conflicts Committee determined that it would request a meeting with the ETE Conflicts Committee to explain its perspectives on the proposed transaction and to make a counteroffer to ETE in which ETE would acquire the ETP common units not already held by ETE and its subsidiaries in a unit-for-unit exchange at an exchange ratio of 1.3 ETE common units for each ETP common unit, representing an approximate 14.3% premium based on the closing prices for the common units of each of ETP and ETE on July 23, 2018 (the “Third ETP Counter”).

Later in the morning of July 31, 2018, Mr. Mason and representatives of Latham held a meeting with the ETE Conflicts Committee, the ETP Conflicts Committee and the conflicts committees’ respective legal and financial advisors to discuss the proposed ETE Class A Units. Mr. Mason addressed a number of questions from the ETP Conflicts Committee and representatives of RLF, V&E and Potter Anderson.

Later on July 31, 2018, following Mr. Mason’s review of the proposed ETE Class A Units, the ETP Conflicts Committee held a meeting with representatives of Barclays and RLF. The ETP Conflicts Committee considered the potential impact of the ETE Class A Units on the proposed transaction and the consideration to be received by the unaffiliated ETP common unitholders as part of the proposed transaction. Following consideration, the ETP Conflicts Committee determined to propose that the terms of the ETE Class A Units be

 

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modified to eliminate the class vote on removal of ETE’s general partner and to modify the terms such that ETE GP and its affiliates would maintain the same relative voting interest in ETE (through the ownership of ETE Class A Units and its continued ownership of ETE common units) that ETE GP and its affiliates had prior to the proposed transaction but that, after the proposed transaction, the ETE Class A Units would only continue to maintain their relative voting interest until such time as Mr. Warren ceased to be involved in the management of ETE GP. The ETP Conflicts Committee authorized the RLF representatives to deliver such feedback to ETE and its advisors.

Later on July 31, 2018, the ETE Conflicts Committee and the ETP Conflicts Committee met to negotiate the exchange ratio for the proposed transaction. At this meeting, the ETP Conflicts Committee delivered and explained its rationale for, the Third ETP Counter to the ETE Conflicts Committee. In response, the ETE Conflicts Committee proposed an exchange ratio of 1.25 ETE common units for each ETP common unit.

Later on July 31, 2018, the ETE Conflicts Committee met with representatives of Potter Anderson and Citi to discuss the negotiation of the exchange ratio and the proposed ETE Class A Units. Following discussion and consideration, the ETE Conflicts Committee determined that it would be appropriate for the terms of the proposed transaction to provide for the issuance of ETE Class A Units to ETE GP in order for ETE GP and its affiliates to maintain their relative voting position in connection with the proposed transaction; however, the ETE Conflicts Committee determined that the terms of the ETE Class A Units should not provide for a separate class vote on removal of the general partner and should not maintain the relative ETE Class A Unit voting interest in perpetuity. The ETE Conflicts Committee also determined that, without approval of the ETE Conflicts Committee, the transferability of the ETE Class A Units should be limited to transfers solely for estate planning purposes. The ETE Conflicts Committee directed Potter Anderson to meet with RLF, as counsel to the ETP Conflicts Committee, to discuss each side’s reaction to the requested terms of the ETE Class A Units.

Later on July 31, 2018, V&E provided comments to the merger agreement, which reflected the ETP Conflicts Committee’s input, to Latham and the ETE Conflicts Committee. V&E’s comments to the merger agreement included a requirement that the proposed transaction be subject to the approval of holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders, in addition to the requirement under the ETP partnership agreement that the transaction be approved by holders of a majority of the ETP common units. Additionally, the revised draft from V&E contemplated a termination fee equal to 2% of the equity value of the transaction and a $30 million expense reimbursement cap.

Later in the afternoon on July 31, 2018, representatives of Potter Anderson and RLF met, on behalf of the ETE Conflicts Committee and the ETP Conflicts Committee, respectively, to discuss the requested terms of the ETE Class A Units.

Later on July 31, 2018, the members of the ETE Conflicts Committee and the ETP Conflicts Committee met with Mr. Warren, acting on behalf of ETE GP as the ETE general partner, and Messrs. Long and Mason to discuss the exchange ratio for the proposed transaction. At such meeting, the ETP Conflicts Committee continued to propose a 1.3 exchange ratio for the proposed transaction and the ETE Conflicts Committee expressed support for an exchange ratio of 1.27 ETE common units for each ETP common unit.

Subsequently, the ETE Conflicts Committee met with representatives of Potter Anderson to report on the meeting with the members of the ETP Conflicts Committee and Mr. Warren and to discuss the ETE Conflicts Committee’s response to the proposed ETE Class A Units, and directed Potter Anderson to provide the ETE Conflicts Committee’s feedback to Mr. Mason.

Following the ETE Conflicts Committee meeting, representatives of Potter Anderson and RLF relayed to Mr. Mason and Latham feedback from the ETE Conflicts Committee and the ETP Conflicts Committee with respect to the terms of the proposed ETE Class A Units. In particular, legal counsel noted that the conflicts committees were opposed to the separate class vote of the ETE Class A Units with respect to any vote on the

 

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removal of ETE GP as the general partner. In addition, legal counsel relayed that the conflicts committees were opposed to allowing the ETE Class A Units to retain the ETE Class A Unit voting interest in perpetuity. Instead, the conflicts committees proposed that the holder(s)’ right to receive additional ETE Class A Units upon the issuance by ETE of common units or other securities with voting rights pari passu to the common units should terminate at the time that Mr. Warren ceased to be involved in the management of ETE GP. Further, the conflicts committees proposed that ETE GP waive its preemptive right in connection with the issuance of ETE common units in the merger and that only transfers by the holder(s) for estate planning purposes be permitted without ETE Conflicts Committee’s approval.

Later on July 31, 2018, the ETP Conflicts Committee held a meeting with representatives of Barclays and RLF. The ETP Conflicts Committee updated its advisors regarding its meetings with the ETE Conflicts Committee and representatives of ETE. The ETP Conflicts Committee and its advisors further considered the proposed transaction, including the preliminary financial analysis prepared by Barclays and the rationale for the proposed transaction. The ETP Conflicts Committee discussed the potential for an acceptable exchange ratio of less than 1.3 ETE common units for each ETP common unit. The RLF representatives also reported on their discussions with Mr. Mason, and representatives of Latham and Potter Anderson regarding the ETE Class A Units.

Later in the day on July 31, 2018, Latham sent a revised draft of the merger agreement to V&E. The draft provided by Latham reflected the requirement that the transaction be approved by holders of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders, as well as the $30 million expense reimbursement cap. However, ETE proposed a termination fee equal to 4% of the equity value of the transaction.

Later in the day on July 31, 2018, Mr. Mason reported to representatives of Potter Anderson and RLF that Messrs. Warren and Davis (in their capacities as sole members of ETE GP) were agreeable to a waiver of ETE GP’s preemptive right in connection with the merger and also agreeable to the proposed revisions to the terms of the ETE Class A Units, provided that the right to receive additional ETE Class A Units upon the issuance by ETE of common units or other securities with voting rights pari passu to the common units would only terminate if Mr. Warren ceased to be an officer or director of ETE GP.

Later in the day on July 31, 2018, Latham sent a draft of the ETE LPA amendment, which included the proposed terms of the ETE Class A Units, to V&E, Potter Anderson and RLF. The draft reflected the discussions regarding the ETE Class A Units had among the ETE Conflicts Committee, the ETP Conflicts Committee, ETE and representatives of Latham earlier in the day.

On the morning of August 1, 2018, the ETE Board held a meeting with management and representatives of Latham and Potter Anderson in attendance. All members of the ETE Board were present. At the meeting, management updated the ETE Board as to the status of negotiations, including with respect to the ETE Class A Units. Mr. Brannon also provided an update to the ETE Board on the status of negotiations relating to the exchange ratio. Representatives of Latham summarized the terms of the draft merger agreement for the ETE Board.

Following the ETE Board meeting, the ETE Conflicts Committee met with representatives of Potter Anderson and Citi to discuss the status of the transaction documents, the proposed terms of the ETE Class A Units, and the anticipated negotiations with the ETP Conflicts Committee with respect to the exchange ratio. The ETE A&C Committee subsequently held a meeting, together with representatives of Potter Anderson, to discuss the proposed transaction.

Later in the morning of August 1, 2018, the ETE Conflicts Committee and the ETP Conflicts Committee met to negotiate the final exchange ratio for the proposed transaction, and, at the conclusion of such negotiations,

 

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the ETE Conflicts Committee and the ETP Conflicts Committee agreed to an exchange ratio of 1.28 ETE common units for each ETP common unit, subject to resolution of the final terms included in the definitive documents.

On August 1, 2018, V&E provided comments to the merger agreement to Latham. The comments reflected a termination fee equal to 3% of the equity value of the transaction. Later in the day, Latham provided a revised draft of the merger agreement, which reflected a 3% termination fee as proposed by V&E. Also throughout the day on August 1, 2018, revised drafts of the merger agreement and the ETE LPA amendment, and a draft waiver of preemptive rights by ETE GP, were exchanged among Latham, V&E, RLF and Potter Anderson.

Later in the morning of August 1, 2018, the ETP Board held a meeting at which representatives of V&E and ETP management were present. During the meeting, the ETP Conflicts Committee provided an update to the ETP Board as to its process to date, including that the ETP Conflicts Committee and ETE Conflicts Committees agreed to an exchange ratio of 1.28 ETE common units for each ETP common unit, subject to resolution of the final terms included in the definitive documents. Representatives of V&E summarized the terms of the merger agreement, including the closing conditions, the representations and warranties, the operating covenants, the deal protections (including the no-shop provisions and related exceptions, the ETP Board’s ability to change its recommendation and to negotiate alternative proposals, termination events, termination fees, and expense reimbursement), the amendment and waiver provisions, and governing law.

During the early afternoon of August 1, 2018, the ETE Conflicts Committee held a meeting with its legal and financial advisors to discuss the proposed transaction. At this meeting, among other matters, Potter Anderson updated the ETE Conflicts Committee regarding the terms of the merger agreement, including the issuance of the ETE Class A Units, the ETE LPA amendment, and the waiver by ETE GP of its preemptive rights in connection with ETE’s issuance of common units in the proposed transaction. Also during this meeting, Citi discussed with the ETE Conflicts Committee certain financial perspectives regarding the exchange ratio of 1.28 ETE common units for each ETP common unit agreed upon by the ETE Conflicts Committee and the ETP Conflicts Committee. Following a discussion and consideration of the proposed transaction, the ETE Conflicts Committee unanimously in good faith (i) determined that the proposed transaction, including the ETE Class A Unit issuance, on the terms and conditions set forth in the merger agreement and the ETE LPA amendment, were advisable, fair and reasonable to ETE and in the best interests of ETE and its unaffiliated unitholders, (ii) approved the merger agreement, the ETE LPA amendment and the proposed transaction, including the ETE Class A Unit issuance (with such approval constituting “Special Approval” for all purposes under the ETE partnership agreement), and (iii) recommended that the ETE Board approve the merger agreement, the ETE LPA amendment, and the proposed transactions, including the ETE Class A Unit issuance.

Following the ETE Conflicts Committee meeting, on August 1, 2018, the ETE A&C Committee held a meeting, together with representatives of Potter Anderson and Citi, to discuss the proposed transaction. At this meeting, among other matters, Mr. Brannon and Mr. Anderson provided an update as to the process engaged in by the ETE Conflicts Committee, including the negotiation of the exchange ratio, and the ETE Conflicts Committee’s earlier determination and approval of the proposed transaction, Potter Anderson updated the ETE A&C Committee regarding the terms of the merger agreement, including the issuance of the ETE Class A Units and the ETE LPA amendment, and, as requested by the ETE Conflicts Committee, Citi discussed with the ETE A&C Committee certain financial perspectives as previously discussed with the ETE Conflicts Committee regarding the exchange ratio of 1.28. Following a discussion regarding the proposed transaction, the merger agreement, the Class A Unit issuance and related matters, the ETE A&C Committee approved, and resolved to recommend that the ETE Board approve, the merger agreement and the ETE LPA amendment, and the transactions contemplated thereby, including the merger and the Class A Unit issuance (with such approval constituting “Special Approval” for all purposes under the ETE GP limited liability company agreement).

Following the ETE Conflicts Committee and ETE A&C Committee meetings, on August 1, 2018, the ETE Board held a board meeting, which ETE management and representatives of Latham attended. All members of

 

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the ETE Board were present. Mr. Brannon provided the ETE Board an update on the 1.28 exchange ratio, as well as the process undertaken by the ETE Conflicts Committee. Following that discussion, Mr. Brannon, on behalf of the ETE Conflicts Committee and the ETE A&C Committee, then advised the ETE Board that both committees had approved the merger agreement and related transactions, including the issuance of the ETE Class A Units, and recommended that the ETE Board approve the merger agreement and related transactions. The ETE Board then discussed various legal, financial and other considerations relating to the proposed transaction, including factors that supported approving the proposed transaction and factors that did not support approving the proposed transaction, and following such discussion, the ETE Board determined that it was in the best interests of ETE and its partners, and declared it advisable, for ETE GP and ETE to enter into the merger agreement, and the ETE Board approved and adopted the merger agreement and the transactions contemplated thereby, including the merger and the issuance of the new ETE Class A Units.

Also during the early afternoon of August 1, 2018, the ETP Conflicts Committee held a meeting with representatives of Barclays and RLF. Prior to the meeting, substantially final versions of the merger agreement, the ETE LPA amendment, the ETP LPA amendment and other ancillary documents were distributed to the ETP Conflicts Committee. The ETP Conflicts Committee reviewed the rationale for the merger (which rationale included the reasons set forth under “—Recommendation of the ETP Board; Reasons for the Merger”). The RLF representatives provided the ETP Conflicts Committee with an overview of various matters relating to the proposed transaction, including updates to the definitive documents. Representatives of Barclays reviewed Barclays’ financial analysis of the proposed transaction with the ETP Conflicts Committee. Upon the request of the ETP Conflicts Committee, Barclays delivered an oral opinion as of August 1, 2018, which was subsequently confirmed by delivery of a written opinion dated as of such date, to the effect that the exchange ratio to be offered to the unaffiliated ETP common unitholders was fair, from a financial point of view, to the unaffiliated ETP common unitholders. Following such discussion and receipt of the Barclays opinion, the ETP Conflicts Committee unanimously (i) determined in good faith that the proposed transaction, including the merger agreement and the transactions contemplated thereby, on the terms and conditions set forth in the merger agreement and the ETP LPA amendment, are advisable and fair and reasonable to ETP, and in the best interests of ETP and the unaffiliated ETP common unitholders, (ii) approved the proposed transaction (including the merger agreement and the ETP LPA amendment), upon the terms and conditions set forth in the merger agreement and the ETP LPA amendment, with such approval constituting “Special Approval” for all purposes under the ETP partnership agreement, and (iii) resolved to recommend that the ETP Board approve the proposed transaction upon the terms set forth in the merger agreement and the ETP LPA amendment and submit the merger agreement to the holders of ETP common units for approval and recommend the approval of the merger agreement by the holders of ETP common units.

Later on the afternoon of August 1, 2018, following the ETE Board meeting and the ETP Conflicts Committee meeting, the ETP Board held a meeting at which representatives from ETP management and V&E also participated. Prior to the meeting, substantially final versions of the merger agreement, ETE LPA amendment, the ETP LPA amendment and other ancillary documents were distributed to the ETP Board, and during the meeting representatives of V&E summarized the key changes to the terms of the merger agreement since the morning meeting of the ETP Board. The ETP Conflicts Committee then reviewed with the ETP Board its process in evaluating, negotiating and recommending the merger to the ETP Board, and its rationale therefore (which rationale included the reasons set forth under “—Recommendation of the ETP Board; Reasons for the Merger”). Mr. Grimm further advised the ETP Board that the ETP Conflicts Committee had approved the merger agreement, that such approval was intended to constitute “Special Approval” under the ETP partnership agreement, and that the ETP Conflicts Committee recommended that the ETP Board approve the merger agreement, submit the merger agreement to ETP’s limited partners for approval and recommend that ETP’s limited partners approve the merger agreement. Following this recommendation, representatives of V&E reviewed with the members of the ETP Board their obligations under the ETP partnership agreement as well as the provisions in the ETP partnership agreement that provide that ETP GP will be deemed to have acted in “good faith” and in compliance with the ETP partnership agreement so long as, among other things, either the ETP Conflicts Committee had granted “Special Approval” of the proposed transactions or the proposed transactions

 

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were approved by ETP unaffiliated unitholder approval, as required by the terms of the merger agreement. After discussion of various considerations relating to the proposed transaction, the ETP Board determined that the form, terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger and the ETP LPA amendment, were advisable, fair and reasonable to and in the best interests of ETP and its partners, and declared it advisable, for ETP to enter into the merger agreement, and the ETP Board approved and adopted the merger agreement and the transactions contemplated thereby, including the merger.

On August 1, 2018, the parties finalized and executed the merger agreement and issued a press release announcing the transaction.

Recommendation of the ETP Board; Reasons for the Merger

The ETP Conflicts Committee consists of three directors: Michael K. Grimm, David K. Skidmore and W. Brett Smith. Each of Messrs. Grimm, Skidmore and Smith satisfy the requirements to serve on the “Conflicts Committee” as such term is defined in the ETP partnership agreement. According to the ETP partnership agreement the “Conflicts Committee” must consist of a committee of the ETP Board composed entirely of two or more directors who are not (a) security holders, officers or employees of ETP GP, (b) officers, directors (other than members of the ETP Board) or employees of any affiliate of ETP GP or (c) holders of any ownership interest in the partnership group (as defined in the ETP partnership agreement), consisting of ETP, Sunoco Logistics Partners Operations L.P. and any subsidiary of any such entity, other than ETP common units. The directors serving on the ETP Conflicts Committee must also meet the independence standards required of directors who serve on an audit committee of a board of directors established by the Exchange Act and the rules and regulations of the SEC promulgated thereunder and by the NYSE.

The ETP Board authorized the ETP Conflicts Committee to (i) consider, review and evaluate any potential conflicts arising in connection with the merger and any other arrangements or agreements related to the proposed merger (“related arrangements”); (ii) consider, review, evaluate and negotiate (or delegate to any person the authority to negotiate) the terms and conditions of, and if so determined by the ETP Conflicts Committee, approve, the proposed merger and any related arrangements; (iii) make any recommendations to the ETP Board regarding the proposed merger and any related arrangements in light of such potential conflicts and (iv) make any recommendations to the holders of ETP common units regarding the proposed merger and any related arrangements in light of such potential conflicts.

The ETP Conflicts Committee retained, and was advised by, Richards, Layton & Finger, P.A. (“RLF”) as its outside legal counsel and Barclays as its financial advisor. The ETP Conflicts Committee oversaw the performance of financial and legal due diligence by its advisors, conducted a review and evaluation of ETE’s proposal, considered other alternatives to the merger, including maintaining the status quo, and conducted, with the assistance of its advisors, negotiations with ETE and its representatives with respect to ETE’s proposal, the merger agreement and other related arrangements. ETP retained Vinson & Elkins L.L.P. as its outside legal counsel.

The ETP Conflicts Committee, by unanimous vote at a meeting held on August 1, 2018, (i) determined in good faith that the proposed merger, including the merger agreement and the ETP LPA amendment and the transactions contemplated thereby, on the terms and conditions set forth in the merger agreement and the ETP LPA amendment are advisable and fair and reasonable to ETP, and in the best interests of ETP and the unaffiliated ETP common unitholders; (ii) approved the proposed merger (including the merger agreement and the ETP LPA amendment), upon the terms and conditions set forth in the merger agreement and the ETP LPA amendment, with such approval constituting “Special Approval” (as defined in the ETP partnership agreement) for all purposes under the ETP partnership agreement; and (iii) resolved to recommend that the ETP Board: (A) approve the proposed merger (including the merger agreement and the ETP LPA amendment and the transactions contemplated thereby) and (B) submit the merger agreement to the holders of common units of ETP for approval and recommend adoption of the merger agreement by the holders of ETP common units.

 

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Based on the ETP Conflicts Committee’s recommendation, the ETP Board, by unanimous vote at a meeting held on August 1, 2018, (i) determined that the form, terms and provisions of the merger agreement and the transactions contemplated thereby, including the merger and the ETP LPA amendment, are advisable, fair and reasonable to and in the best interests of ETP and ETP’s limited partners, (ii) approved and adopted the merger agreement and approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger, in all respects, (iii) authorized and empowered ETP Managing GP and ETP to enter into the merger agreement and to consummate the transactions contemplated thereby, including the merger, on the terms and subject to the conditions set forth in the merger agreement and (iv) resolved to recommend to the holders of ETP common units that such holders vote in favor of the adoption of the merger agreement.

The ETP Conflicts Committee and the ETP Board viewed the following factors as being generally positive or favorable in coming to their determinations and recommendation with respect to the merger:

 

   

The financial terms offered to the holders of ETP common units, including:

 

   

The consideration to be paid to holders of ETP common units of 1.28 ETE common units for each ETP common unit, represents:

 

   

A 15% premium to the 10-day volume-weighted average closing price for the period ended on August 1, 2018 (the last trading day before the announcement of the merger agreement).

 

   

An 11% premium to ETP’s closing price on August 1, 2018 (the last trading day before the announcement of the merger agreement).

 

   

The fact that the exchange ratio is fixed and therefore not subject to negative trading discrepancies.

 

   

The fact that the unaffiliated unitholders of ETP should not recognize gain or loss as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code or any deemed sale of ETE common units pursuant to the withholding provisions of the merger agreement and except to the extent that any Section 707 consideration causes the merger to be treated as a “disguised sale”).

 

   

Holders of ETP common units would be entitled to the right to receive ETE common units at the exchange ratio, which is a price the ETP Conflicts Committee viewed as fair and reasonable in light of ETP’s recent and projected financial performance and past trading prices of the ETP common units and in light of the strengths of the surviving entity and benefits to be received by the holders of ETP common units, including, among others:

 

   

The merger eliminates the burden on ETP’s cost of capital resulting from the level of incentive distributions payable to ETE, which could from time to time make it more challenging for ETP to pursue accretive acquisitions and relatively more expensive to fund its capital expenditure program.

 

   

The ETP Conflicts Committee’s expectation that the transaction will strengthen and enhance the pro forma balance sheet of the combined partnership by utilizing higher retained cash flow to further delever and to fund a portion of ETP’s robust growth capital expenditure program.

 

   

The expectation that the combined partnership’s increased distribution coverage will provide distribution stability and long-term growth prospects, enhancing funding optionality and reducing reliance on capital markets.

 

   

The ETP Conflicts Committee’s expectation that ETE common units after the merger will trade better on a number of metrics relative to how the ETP common units have traded on a historic basis.

 

   

The ETP Conflicts Committee’s expectation that the pro forma partnership will retain a strong investment-grade credit rating, which expectation is based on discussions between management and the rating agencies.

 

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The ETP Conflicts Committee’s expectation that the merger will be distributable cash flow accretive to current holders of ETP common units starting in the year 2020.

 

   

The financial presentation and opinion of Barclays, dated August 1, 2018, stating that as of such date, and based upon and subject to the qualifications, limitations and assumptions stated therein, from a financial point of view, the exchange ratio to be offered to the unaffiliated ETP common unitholders in the proposed merger is fair to such unitholders.

 

   

The ETP Conflicts Committee’s belief that the merger presents the best opportunity to maximize value for holders of common units of ETP, which belief is based on consideration of alternative transaction structures (including maintaining the status quo) between ETE and ETP.

 

   

That the merger will simplify the organizational structure of ETE and its subsidiaries, thereby streamlining corporate governance matters and eliminating potential for conflicts of interests between ETE and ETP.

 

   

The strength of ETP’s and the ETP Conflicts Committee’s negotiations and the value obtained therefrom, including:

 

   

The exchange ratio of 1.28 ETE common units for each ETP common unit represents an approximate 10% improvement over ETE’s initial proposal of 1.194 ETE common units for each ETP common unit.

 

   

ETE and the ETE Conflicts Committee’s acceptance to condition the merger on the approval of the unaffiliated ETP common unitholders.

 

   

The following procedural safeguards involved in the negotiation of the merger agreement:

 

   

The ETP Conflicts Committee consisted solely of directors who are not officers or controlling unitholders of ETE or its affiliates and who satisfied the requirements under the ETP partnership agreement for service on the ETP Conflicts Committee.

 

   

The ETP Conflicts Committee was charged with evaluating and negotiating the terms and conditions of the proposed merger on behalf of ETP and the unaffiliated ETP common unitholders, with the power to decline to pursue a transaction.

 

   

The terms and conditions of the merger agreement and the merger were determined through arm’s-length negotiations between the ETE Conflicts Committee and the ETP Conflicts Committee and their respective representatives and advisors.

 

   

The ETP Conflicts Committee retained and was advised by experienced and qualified advisors, consisting of legal counsel, RLF, and financial advisor, Barclays.

 

   

The terms of the merger agreement, principally:

 

   

The provisions allowing the ETP Conflicts Committee and the ETP Board to withdraw or change their recommendation of the merger agreement in the event of a superior proposal from a third party (other than ETE or its affiliates) or a change of circumstance if the ETP Board (upon the recommendation of the ETP Conflicts Committee) makes a good faith determination that the failure to change its recommendation would be reasonably likely to be inconsistent with its duties under applicable law, as modified by the ETP partnership agreement, and complies with the terms of the merger agreement.

 

   

The provisions allowing ETP to provide information to, and participate in discussions and negotiations with, a third party (other than ETE or its affiliates) in response to an unsolicited alternative proposal, which may, in certain circumstances, result in a superior proposal.

 

   

The operating covenants to which ETE is subject in the merger agreement provide protection to ETP unitholders by restricting ETE’s ability to take certain actions prior to the closing of the merger that could reduce the value of the ETE common units received by ETP common unitholders in the merger.

 

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Under the terms of the merger agreement, prior to the effective time, ETP Managing GP is prohibited from revoking or diminishing the authority of the ETP Conflicts Committee.

 

   

Any amendments to the merger agreement require consultation with the ETP Conflicts Committee, and the ETP Conflicts Committee is permitted to rescind its approval of the merger agreement, with such rescission resulting in the rescission of “Special Approval” (as defined in the ETP partnership agreement), if the ETP Board takes or authorizes any amendment that is counter to any recommendation by the ETP Conflicts Committee.

 

   

If the ETP Board (i) waives any inaccuracies in the representations and warranties of the other party under the merger agreement, (ii) extends time for performance of the other party’s obligations under the merger agreement, (iii) waives the other party’s compliance with any agreement or condition contained in the merger agreement, or (iv) otherwise grants any consent under the merger agreement without the concurrence of the ETP Conflicts Committee, then the ETP Conflicts Committee can rescind its approval of the merger agreement, with such rescission resulting in the rescission of “Special Approval” (as defined in the ETP partnership agreement).

The ETP Conflicts Committee and the ETP Board considered the following additional factors in making their determinations and recommendation with respect to the merger:

 

   

There are certain potential negative consequences that may affect ETP common unitholders, including the following:

 

   

The ETP common unitholders will receive ETE common units that are expected, throughout management’s forecast period, to pay a significantly lower distribution as compared to the current distribution on ETP common units on a standalone basis.

 

   

The ETP Conflicts Committee’s expectation that the merger will be distributable cash flow dilutive to current unaffiliated ETP common unitholders until the year 2020.

 

   

The exchange ratio is fixed and therefore not subject to positive trading discrepancies.

 

   

In connection with the merger, ETE will issue ETE Class A Units to its general partner that will dilute the voting power of ETE common unitholders, which, following the merger, will include the unaffiliated ETP common unitholders.

 

   

The unaffiliated ETP common unitholders will be foregoing the potential benefits that would be realized by remaining unitholders of ETP on a standalone basis.

 

   

The absence of certain procedural safeguards, including:

 

   

The fact that the ETP common unitholders are not entitled to appraisal rights under the merger agreement, the ETP partnership agreement or Delaware law.

 

   

The ETP Conflicts Committee was not authorized to and did not conduct an auction process or other solicitation of interest from third parties for the acquisition of ETP. Since ETE controls ETP, it was unrealistic to expect an unsolicited third-party acquisition proposal to acquire assets or control of ETP, and it was unlikely that the ETP Conflicts Committee could conduct a meaningful process to solicit interest in the acquisition of assets or control of ETP.

 

   

Certain executive officers and directors of ETE and ETP have interests in the merger that are different than, or in addition to, the interests of the unaffiliated ETP common unitholders. Please read “—Interests of Directors and Executive Officers of ETP in the Merger.”

 

   

Certain terms of the merger agreement, principally:

 

   

The provisions limiting the ability of ETP to solicit, or to consider unsolicited, offers from third parties for ETP.

 

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The operating covenants to which ETP is subject in the merger agreement restrict ETP from taking certain actions prior to the closing of the merger that could be beneficial to ETP and the ETP common unitholders.

 

   

Certain break-up fees payable by ETP, including in connection with termination of the merger agreement as a result of a superior proposal for ETP.

 

   

ETP’s obligation to pay ETE’s expenses in certain circumstances.

 

   

Litigation may occur in connection with the merger and any such litigation may result in significant costs and a diversion of management focus.

 

   

There is risk that the merger might not be completed in a timely manner, or that the merger might not be consummated at all as a result of a failure to satisfy the conditions contained in the merger agreement, and a failure to complete the merger could negatively affect the trading price of the ETP common units or could result in significant costs and disruption to ETP’s normal business.

The foregoing discussion is not intended to be exhaustive, but is intended to address the material information and principal factors considered by the ETP Conflicts Committee and the ETP Board in considering the merger. In view of the number and variety of factors and the amount of information considered, the ETP Conflicts Committee and the ETP Board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching their determinations. In addition, the ETP Conflicts Committee and the ETP Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to their ultimate determinations, and individual members of the ETP Conflicts Committee and the ETP Board may have given different weights to different factors. The ETP Conflicts Committee and the ETP Board made their recommendations based on the totality of information presented to, and the investigation conducted by, the ETP Conflicts Committee and the ETP Board. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

The ETP Board, based on the recommendation of the ETP Conflicts Committee, recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the merger agreement at the time of the special meeting.

Opinion of the Financial Advisor to the ETP Conflicts Committee

The ETP Conflicts Committee engaged Barclays to act as the ETP Conflicts Committee’s financial advisor with respect to the proposed transaction. On August 1, 2018, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to the ETP Conflicts Committee that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the exchange ratio to be offered to the unaffiliated ETP common unitholders in the proposed transaction is fair, from a financial point of view, to such unaffiliated ETP common unitholders.

The full text of Barclays’ written opinion, dated as of August 1, 2018, is attached to this proxy statement/prospectus as Annex B. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

Barclays’ opinion, the issuance of which was approved by Barclays’ Valuation and Fairness Opinion Committee, is addressed to the ETP Conflicts Committee, addresses only the fairness to unaffiliated ETP

 

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common unitholders, from a financial point of view, of the exchange ratio to be offered to such unaffiliated ETP common unitholders in the proposed transaction and does not constitute a recommendation to any unaffiliated ETP common unitholder as to how such unaffiliated ETP common unitholder should vote or act with respect to the proposed transaction or any other matter. The terms of the proposed transaction were determined through arm’s-length negotiations between the ETP Conflicts Committee and the ETE Conflicts Committee and were approved unanimously by the ETP Conflicts Committee. Barclays did not recommend that any specific form of consideration should be offered to unaffiliated ETP common unitholders or that any specific form of consideration constituted the only appropriate consideration for the proposed transaction. Barclays was not requested to address, and its opinion does not in any manner address, the underlying business decision to proceed with or effect the proposed transaction or the likelihood of consummation of the proposed transaction or the relative merits of the proposed transaction as compared to any other transaction or business strategy in which ETP might engage. In addition, Barclays expressed no view as to, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the proposed transaction, or any class of such persons, relative to the exchange ratio to be offered to the unaffiliated ETP common unitholders in the proposed transaction or otherwise. In addition, Barclays assumed that the issuance of the ETE Class A Units will be effected, but expressed no view as to the fairness, from a financial point of view, as to such issuance. No limitations were imposed by ETP or the ETP Conflicts Committee upon Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.

In arriving at its opinion, Barclays reviewed and analyzed, among other things:

 

   

the merger agreement, dated as of August 1, 2018 and the specific terms of the proposed transaction;

 

   

publicly available information concerning ETP that Barclays believed to be relevant to its analysis, including ETE’s and ETP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018;

 

   

financial and operating information with respect to the business, operations and prospects of ETP furnished to Barclays by ETP, including unaudited financial projections of ETP prepared by management of ETE and ETP and approved for Barclays’ use by the ETP Conflicts Committee, which unaudited financial projections are more fully described under “The Merger—Unaudited Financial Projections of ETE, ETP and the Combined Partnership—ETP Unaudited Financial Projections” and are referred to herein as the “ETP Unaudited Financial Projections”;

 

   

financial and operating information with respect to the business, operations and prospects of ETE furnished to Barclays by ETP, including unaudited financial projections of ETE prepared by management of ETE and ETP and approved for Barclays’ use by the ETP Conflicts Committee, which unaudited financial projections are more fully described under “The Merger—Unaudited Financial Projections of ETE, ETP and the Combined Partnership—ETE Unaudited Financial Projections” and are referred to herein as the “ETE Unaudited Financial Projections”;

 

   

the pro forma impact of the proposed transaction on the future financial performance of the combined company;

 

   

a trading history of ETP Common Units and ETE common units from August 1, 2016 to July 31, 2018 and a comparison of those trading histories with those of other companies that Barclays deemed relevant;

 

   

a comparison of the historical financial results and present financial condition of ETP and ETE with each other and with those of other companies that Barclays deemed relevant;

 

   

a comparison of the financial terms of the proposed transaction with the financial terms of certain other transactions that Barclays deemed relevant;

 

   

alternatives available to ETP on a stand-alone basis to fund its future capital and operating requirements; and

 

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published estimates of independent research analysts with respect to the future financial performance of ETP and ETE, including price targets of ETP common units and ETE common units.

In addition, Barclays has had discussions with the management of ETP and ETE concerning their respective businesses, operations, assets, liabilities, financial condition and prospects and have undertaken such other studies, analyses and investigations as Barclays deemed appropriate.

In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of such information (and had not assumed responsibility or liability for any independent verification of such information) and further relied upon the assurances of the management of ETP that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the ETP Unaudited Financial Projections, upon the advice of the ETP management and at the instruction of the ETP Conflicts Committee, Barclays assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of ETE as to the future financial performance of ETP and that ETP will perform substantially in accordance with such projections. With respect to the ETE Unaudited Financial Projections, upon the advice of ETE management and at the instruction of the ETP Conflicts Committee, Barclays assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of ETE as to the future financial performance of ETE and that ETE will perform substantially in accordance with such projections. In arriving at its opinion, Barclays assumed no responsibility for and expressed no view as to any such projections or estimates or the assumptions on which they were based. In connection with rendering its opinion, Barclays assumed that the issuance of the ETE Class A Units will be effected, but Barclays expressed no opinion as to the fairness, from a financial point of view, as to such issuance. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of ETP and did not make or obtain any evaluations or appraisals of the assets or liabilities of ETP. In addition, ETP did not authorize Barclays to solicit, and Barclays did not solicit, any indications of interest from any third party with respect to the purchase of all or a part of ETP’s business. Barclays’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, August 1, 2018. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after August 1, 2018 or may occur after the date of this proxy statement/prospectus. Barclays expressed no opinion as to (i) the prices at which ETP common units would trade following the announcement of the proposed transaction or (ii) the prices at which ETE common units would trade following the announcement or consummation of the proposed transaction. Barclays’ opinion should not be viewed as providing any assurance that the market value of ETE common units to be held by the unaffiliated ETP common unitholders after the consummation of the proposed transaction will be in excess of the market value of ETP common units owned by such unaffiliated ETP common unitholders at any time prior to the announcement or consummation of the proposed transaction.

Barclays assumed the accuracy of the representations and warranties contained in the merger agreement and all the agreements related thereto. Barclays also assumed, upon the advice of ETP, that all material governmental, regulatory and third party approvals, consents and releases for the proposed transaction would be obtained within the constraints contemplated by the Agreement and that the proposed transaction will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays did not express any opinion as to any tax or other consequences that might result from the proposed transaction, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which Barclays understood that ETP and the ETP Conflicts Committee had obtained such advice as they deemed necessary from qualified professionals.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to ETP common units or ETE common units but rather made its determination as to fairness, from a financial point of view, to unaffiliated ETP common unitholders of the exchange ratio to be offered to such unaffiliated ETP

 

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common unitholders in the proposed transaction on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

Summary of Material Financial Analyses

The following is a summary of the material financial analyses performed by Barclays with respect to ETP and ETE in preparing Barclays’ opinion:

 

   

discounted distributable cash flows analysis;

 

   

selected comparable company analysis;

 

   

selected precedent transactions analysis; and

 

   

analysis of public third-party equity research analyst price targets of ETP and ETE.

Each of these methodologies was used to generate reference per unit equity value ranges for ETP common units and reference per unit equity value ranges for ETE common units. In order to derive implied per unit values in the selected comparable company analysis and the selected precedent transactions analysis, the implied equity value range for ETP and ETE was then divided by an applicable estimate of the number of diluted units estimated to be outstanding. For purposes of the ETP calculations, the number of diluted units outstanding at June 30, 2018, per the ETP Unaudited Financial Projections, was used to derive implied per unit values. The reference per unit equity value ranges were then also used to generate implied exchange ratios for each of these methodologies. For purposes of the ETE calculations, the number of units estimated to be outstanding at June 30, 2018, per the ETE Unaudited Financial Projections, was used to derive implied per unit values. For purposes of its analyses, Barclays utilized the exchange ratio of 1.2800x ETE common units for each ETP common unit to determine an implied equity value of $23.31 per ETP common unit for the proposed transaction based on the price of an ETE common unit at market close on July 31, 2018. For each of the discounted distributable cash flow analysis, the selected comparable company analysis, the selected precedent transactions analysis, and the analysis of public third-party equity research analyst price targets, the implied equity value ranges per ETP common unit and the implied exchange ratios were then compared to the exchange ratio of 1.2800x ETE common units for each ETP common unit in the proposed transaction.

In addition to analyzing the value of ETP common units and ETE common units, to provide additional background and perspective to the ETP Conflicts Committee, Barclays also analyzed and reviewed: (i) the daily historical closing prices of ETP common units and ETE common units and the exchange ratios implied by those closing unit prices for the period from July 31, 2017 to July 31, 2018; (ii) certain publicly available information related to selected affiliated master limited partnership (“MLP”) merger transactions to calculate the size of premiums paid by the acquirers to the acquired company’s unitholders; (iii) the pro forma impact of the proposed transaction on the current and future financial performance and credit profile of the combined company using projected estimates for 2019, 2020, and 2021 for distributable cash flow per unit and distributions per unit for the combined company based on the ETP Unaudited Financial Projections and the ETE Unaudited Financial Projections.

In particular, in applying the various valuation methodologies to the particular businesses, operations and prospects of ETP and ETE, and the particular circumstances of the proposed transaction, Barclays made

 

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qualitative judgments as to the significance and relevance of each analysis. In addition, Barclays made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of ETP and ETE. Such qualitative judgments and assumptions of Barclays were made following discussions with the managements of each of ETP and ETE. Accordingly, the methodologies and the implied common equity value ranges and implied exchange ratio ranges derived from there must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied common equity value ranges or the implied exchange ratio ranges without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying, and conclusions represented by, Barclays’ opinion.

The summary of Barclays’ analyses and reviews provided below is not a complete description of the analyses and reviews underlying Barclays’ opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to summary description.

For the purposes of its analyses and reviews, Barclays made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of ETP or any other parties to the proposed transaction. No company, business or transaction considered in Barclays’ analyses and reviews is identical to ETP, ETE, or the proposed transaction, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions considered in Barclays’ analyses and reviews. None of ETP Conflicts Committee, ETP, ETE, Barclays or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of companies, businesses or securities do not purport to be appraisals or reflect the prices at which the companies, businesses or securities may actually be sold. Accordingly, the estimates used in, and the results derived from, Barclays’ analyses and reviews are inherently subject to substantial uncertainty.

The summary of the financial analyses and reviews summarized below include information presented in tabular format. In order to fully understand the financial analyses and reviews used by Barclays, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Barclays’ analyses and reviews.

Discounted Distributable Cash Flow Analysis

In order to estimate the present values of ETP common units and ETE common units, Barclays performed discounted distributable cash flow analyses for each of ETP and ETE. A discounted cash flow analysis is a traditional valuation methodology used to derive an intrinsic valuation of an asset by calculating the “present value” of estimated future cash flows of the asset; in this case, the “present value” of the estimated future distributable cash flows of ETP common units and ETE common units. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future distributable cash flows by a range of discount rates that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns, the time value of money, and other appropriate factors.

The discounted distributable cash flow analysis for ETP common units was performed using the ETP Unaudited Financial Projections from 2019 through 2021. To calculate the estimated per ETP common unit

 

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equity value ranges in the discounted distributable cash flow analysis, Barclays added (i) projected distributable cash flow per ETP common unit for fiscal years 2019 through 2021 based on the ETP Unaudited Financial Projections to (ii) the terminal value at the end of the forecast period, or the “terminal value” of ETP common units, as of December 31, 2021, and discounted such distributable cash flows per ETP common unit to their net present value as of January 1, 2019 using selected discount rates. Barclays used a nominal discount rate range of 11.5% to 13.5%. This discount rate range was selected by Barclays using its professional judgment and experience, taking into account projected cost of equity capital rates for ETP and the comparable companies utilized in the Selected Comparable Companies Analysis described below. The terminal value of ETP common units was estimated by applying a range of assumed yields of 8.5% to 10.5% to ETP’s estimated distributable cash flow per ETP common unit for 2021. The assumed yields were selected by Barclays based on Barclays’ professional judgment and experience, taking into account the yields of ETP and the selected comparable companies utilized in the Selected Comparable Companies Analysis described below. The reference equity value range per ETP common unit yielded by the ETP discounted distributable cash flow analysis implied an equity value range for ETP common units of $26.00 to $31.00 per ETP Common Unit, as compared to the closing ETP common unit price of $20.96 on July 31, 2018.

To calculate the estimated per ETE common unit equity value ranges in the discounted distributable cash flow analysis for ETE, Barclays added (i) projected distributable cash flow per ETE common unit for fiscal years 2019 through 2021 based on the ETE Unaudited Financial Projections to (ii) the terminal value of ETE common units, as of December 31, 2021, and discounted such distributable cash flows per ETE common unit to their net present value as of January 1, 2019 using a nominal discount rate range of 12.0% to 14.0%. This discount rate range was selected by Barclays using its professional judgment and experience, taking into account projected cost of equity capital rates for ETE and the selected comparable companies utilized in the Selected Comparable Companies Analysis described below. The terminal value of ETE common units was estimated by applying a range of assumed yields of 5.75% to 7.75% to ETE’s 2021 estimated distributable cash flow per ETE common unit. The assumed yields were selected by Barclays based on Barclays’ professional judgment and experience, taking into account the yields of ETE and the selected comparable companies utilized in the Selected Comparable Companies Analysis described below. The reference equity value range for ETE common units yielded by the ETE discounted distributable cash flow analysis implied an equity value range for ETE of $18.00 to $23.50 per ETE common unit, as compared to the closing ETE common unit price of $18.21 on July 31, 2018.

Using the implied reference equity value per unit ranges for each of ETP common units and ETE common units, Barclays derived reference implied exchange ratio ranges of 1.1064x to 1.7222x.

Barclays noted that the exchange ratio of 1.2800x to be offered to unaffiliated ETP common unitholders in the proposed transaction was in line with the implied exchange ratio range yielded by Barclays’ discounted distributable cash flow analysis.

Selected Comparable Company Analysis

In order to assess how the public market values units of similar publicly traded midstream corporations and MLPs and to provide a range of relative implied equity values per ETP common unit and per ETE common unit by reference to those companies, which could then be used to calculate implied exchange ratio ranges, Barclays reviewed and compared specific financial and operating data relating to ETP and ETE to that of midstream corporations and MLPs selected by Barclays based on Barclays’ experience with midstream corporations and MLPs.

The midstream corporations and MLPs selected with respect to ETP were:

 

   

Enbridge Inc.

 

   

Kinder Morgan Inc.

 

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ONEOK, Inc.

 

   

TransCanada Corporation

 

   

Williams Companies, Inc.

 

   

Enterprise Products Partners, L.P.

 

   

MPLX LP

 

   

Plains All American Pipeline, L.P.

Barclays calculated and compared various financial multiples and ratios of ETP and ETE and the selected comparable companies. As part of its selected comparable company analysis, Barclays calculated and analyzed distributable cash flow per unit yields and enterprise value (“EV”) divided by earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples using published estimates by third party equity research analysts for estimated distributable cash flow per unit and EBITDA in 2019 for each of the comparable companies selected and for ETP using the ETP Unaudited Financial Projections. All of these calculations were performed, and based on publicly available financial data including Factset and closing prices, as of July 31, 2018, the last trading date prior to the delivery of Barclays’ opinion. The results of the ETP selected comparable company analysis are summarized below:

 

     Yield Range of Comparable MLPs of ETP  
     Low     Median     High  

Distributable Cash Flow per Unit Yield:

      

2019E Yield

     6.1     9.0     12.1

 

     Multiple Range of Comparable MLPs of ETP  
         Low              Median              High      

EV as a multiple of:

        

2019E EBITDA

     10.0x        11.7x        14.6x  

Barclays selected the comparable midstream corporations and MLPs listed above because their business and operating profiles are reasonably similar to that of ETP. However, because of the inherent differences between the business, operations and prospects of ETP and those of the selected comparable companies, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made certain qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of ETP and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between ETP and the selected midstream corporations and MLPs included in the selected comparable company analysis. The equity value range for ETP common units yielded by the ETP selected comparable company analysis implied a reference equity value range for ETP of $24.00 to $34.00 per ETP common unit.

The general partners selected with respect to ETE were:

 

   

Antero Midstream GP LP

 

   

EnLink Midstream LLC

 

   

EQT GP Holdings, LP

 

   

Western Gas Equity Partners, LP

 

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Barclays calculated and analyzed the implied general partner value as a multiple of general partner distributions using published estimates by third party equity research analysts for estimated general partner distributions in 2019 and 2020 for each of the comparable companies selected and for ETE using the ETE Unaudited Financial Projections. The results of the ETE selected comparable company analysis are summarized below:

 

     Multiple Range of Comparable General
Partners of ETE
 
         Low              Median              High      

General Partner Value as a multiple of:

        

2019E General Partner Distributions

     14.1x        18.3x        22.4x  

2020E General Partner Distributions

     11.0x        13.6x        21.7x  

Barclays selected the comparable general partners listed above because their business and operating profiles are reasonably similar to that of ETE. However, because of the inherent differences between the business, operations and prospects of ETE and those of the selected comparable companies, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made certain qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of ETE and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between ETE and the selected general partners included in the selected comparable company analysis. The equity value range for ETE common units yielded by the ETE comparable company analysis implied a reference equity value range for ETE of $17.50 to $23.50 per ETE common unit.

Using the implied reference equity value per unit ranges for each of ETP and ETE, Barclays derived a reference implied exchange ratio range of 1.0213x to 1.9429x.

Barclays noted that the exchange ratio of 1.2800x to be offered to unaffiliated ETP common unitholders in the proposed transaction was in line with the implied exchange ratio range yielded by Barclays’ selected comparable companies analysis.

 

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Selected Precedent Transactions Analysis

Barclays reviewed and compared the purchase prices and financial multiples paid in selected other MLP transactions that Barclays deemed relevant based on its experience with merger and acquisition transactions, particularly in the MLP industry. Barclays chose such MLP merger transactions based on, among other things, the similarity of the applicable companies to ETP and ETE with respect principally to size and operational focus. Each of the selected transactions was an acquisition of an MLP announced between June 2009 and July 2018. None of the transactions selected based on the criteria were subsequently excluded in conducting this analysis. The following list sets forth the transactions analyzed based on such characteristics:

 

Target / Acquirer

  

Announcement Date

•  Williams Energy Partners, LP / Williams Companies Inc.

   May 2018

•  Rice Midstream Partners LP / EQT Midstream Partners, LP

   April 2018

•  Tallgrass Energy Partners LP / Tallgrass Energy GP

   March 2018

•  Southcross Energy Partners, L.P. / American Midstream Partners, LP

   November 2017

•  Arc Logistics Partners LP / Zenith Energy LP

   August 2017

•  PennTex Midstream Partners, LP / Energy Transfer Partners, L.P.

   May 2017

•  World Point Terminals, LP / World Point Terminals, Inc.

   April 2017

•  VTTI Energy Partners LP / VTTI B.V.

   March 2017

•  ONEOK Partners, L.P. / ONEOK, Inc.

   February 2017

•  Energy Transfer Partners, L.P. / Sunoco Logistics Partners L.P.

   November 2016

•  Columbia Pipeline Partners / TransCanada Corporation

   November 2016

•  JP Energy Partners LP / American Midstream Partners, LP

   October 2016

•  Rose Rock Midstream, L.P. / SemGroup Corporation

   May 2016

•  Targa Resources Partners LP / Targa Resources Corp.

   November 2015

•  Crestwood Midstream Partners LP / Crestwood Equity Partners LP

   May 2015

•  Regency Energy Partners LP / Energy Transfer Partners, L.P.

   January 2015

•  Duncan Energy Partners L.P. / Enterprise Products Partners L.P.

   February 2011

•  TEPPCO Partners, L.P. / Enterprise Products Partners L.P.

   June 2009

Using publicly available information, Barclays calculated and analyzed multiples of EV to last twelve month (“LTM”) EBITDA (“LTM EBITDA”) represented by the prices paid in the above selected precedent transactions. The results of the selected precedent transactions analysis are summarized below:

 

     EV / LTM EBITDA  
     Low      Median      Mean      High  

EV as a Multiple of:

           

LTM EBITDA

     6.8x        11.4x        11.9x        26.0x  

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences between the businesses, operations, financial conditions and prospects of ETP and the MLPs included in the selected precedent transactions analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transactions analysis would not be particularly meaningful in the context of considering the proposed transaction. Barclays therefore made qualitative judgments concerning

 

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differences between the characteristics of the selected precedent transactions and the proposed transaction which would affect the acquisition values of the selected target companies and ETP. Based upon these judgments, Barclays’ selected precedent transactions analysis yielded a reference equity value range for ETP common units of $23.00 to $36.00 per ETP common unit.

Barclays also reviewed and compared the purchase prices and financial multiples paid in selected other transactions, specifically those transactions involving a general partner or the general partner’s GP and IDR interests, that Barclays deemed relevant based on its experience with merger and acquisition transactions. Barclays chose such general merger transactions based on, among other things, the similarity of the applicable companies to ETE with respect principally to size and operational focus and because the organizations involved are all structured as general partners. Each of the selected transactions was an acquisition of a general partner announced between June 2014 and July 2018. None of the transactions selected based on the criteria were subsequently excluded in conducting this analysis. The following list sets forth the transactions analyzed based on such characteristics:

 

Target / Acquirer

  

Announcement Date

•  NuStar GP Holdings, LLC / NuStar Energy L.P.

   February 2018

•  Enbridge Inc. / Spectra Energy Partners, LP

   January 2018

•  CONE Midstream Partners LP / CNX Resources Corporation

   December 2017

•  Marathon Petroleum Corporation / MPLX LP

   December 2017

•  HollyFrontier Corporation / Holly Energy Partners, L.P.

   October 2017

•  Andeavor / Andeavor Logistics LP

   August 2017

•  Williams Companies, Inc. / Williams Partners L.P.

   January 2017

•  Plains GP Holdings / Plains All American, L.P.

   July 2016

•  TransMontaigne GP L.L.C. / ArcLight Capital Partners

   January 2016

•  Atlas Energy, L.P. / Targa Resources Corp.

   October 2014

•  Oiltanking Holding Americas, Inc. / Enterprise Products Partners L.P.

   October 2014

•  Global Infrastructure Partners / Williams Companies, Inc.

   June 2014

•  TransMontaigne Inc. / NGL Energy Partners LP

   June 2014

Using publicly available information, Barclays calculated and analyzed multiples of the value of the general partner to latest quarter annualized (“LQA”) distributions to the general partner represented by the prices paid in the selected precedent transactions. The results of the selected precedent transactions analysis are summarized below:

 

     General Partner Value / LQA GP Distribution  
         Low              Median              Mean              High      

General Partner Value as a Multiple of:

           

LQA GP Distribution

     8.8x        20.4x        37.2x        183.5x  

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences between the businesses, operations, financial conditions and prospects of ETE and the general partners included in the selected precedent transactions analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transactions analysis would not be particularly meaningful in the context of considering the proposed transaction. Barclays therefore made qualitative judgments concerning differences between the characteristics of the selected precedent transactions and the proposed

 

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transaction which would affect the acquisition values of the selected target companies and ETE. Based upon these judgments, Barclays’ selected precedent transactions analysis yielded a reference equity value range for ETE common units of $18.50 to $29.00 per ETE common unit.

Using the implied reference equity value per unit ranges for each of ETP common units and ETE common units, Barclays also derived a reference implied exchange ratio range of 0.7931x to 1.9459x.

Barclays noted that the exchange ratio of 1.2800x to be offered to unaffiliated ETP common unitholders in the proposed transaction was in line with the implied exchange ratio range yielded by Barclays’ selected precedent transactions analysis.

Other Factors

Analysis of Equity Research Analyst Price Targets

Barclays reviewed and compared, as of July 31, 2018, the publicly available price targets of ETP common units and ETE common units published by equity research analysts associated with various Wall Street firms, of which there were 10 (including Barclays’ equity research analyst price targets for each of ETP and ETE). The research analysts’ price targets per ETP common unit ranged from $20.00 to $31.00 and per ETE common unit ranged from $17.00 to $23.00. The publicly available unit price targets published by such equity research analysts do not necessarily reflect the current market trading prices for ETP common units or ETE common units and these estimates are subject to uncertainties, including future financial performance of ETP and ETE and future market conditions.

Historical Common Unit Trading Analysis

To provide background information and perspective with respect to the historical unit prices of ETP common units and ETE common units, Barclays reviewed the daily historical closing unit prices of ETP common units and ETE common units for the period from July 31, 2017 to July 31, 2018. Barclays analyzed the ratio of the daily closing price per ETP common unit to the corresponding closing price per ETE common unit over such period. Over the period, the implied relative exchange ratio ranged from a low of 0.9273x to a high of 1.1994x ETE common units per ETP common unit. In addition, Barclays reviewed the implied relative exchange ratio of the closing price per ETP common unit and closing price per ETE common unit based on July 31, 2018 closing prices and 5-day, 10-day, and 30-day volume-weighted average prices (“VWAP”), respectively, as of July 31, 2018. This analysis implied relative exchange ratios ranging from a low of 1.1251x to a high of 1.1466x ETE common units per ETP common unit, which Barclays noted was in line with the exchange ratio to be offered to unaffiliated ETP common unitholders in the proposed transaction.

Premiums Analysis

In order to provide background information and perspective to, and to assess the implied premium offered to unaffiliated ETP common unitholders in the proposed transaction, Barclays reviewed and analyzed the implied premium levels in the proposed transaction based on the “Heads-Up” exchange ratios, which reflects the implied exchange ratio of ETP common unit trading prices and ETE common unit trading prices without considering any adjustments, as of July 31, 2018 and the 5-day, 10-day, and 30-day VWAP of ETP common units and ETE common units. The table below sets forth the summary results of the analysis:

 

     “Heads-Up”
Exchange Ratio
     Implied Premium /
(Discount) to Historical
“Heads-Up” Exchange  Ratio
 

Proposed Transaction

     1.2800x        —  

Current (07/31/2018)

     1.1510x        11.2

5-Day VWAP

     1.1466x        11.6

10-Day VWAP

     1.1460x        11.7

30-Day VWAP

     1.1251x        13.8

 

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Pro Forma Merger Consequences Analysis

Barclays reviewed and analyzed the pro forma impact of the transaction on projected LP distributable cash flow and distributions of the combined company for each of 2019, 2020, and 2021 using the ETP Unaudited Financial Projections and the ETE Unaudited Financial Projections. For ETP, Barclays noted that pro forma per unit distributable cash flow for the combined company would range from ~1% dilutive compared to ETP standalone to ~3% accretive compared to ETP standalone between 2019 and 2021. For ETE, Barclays noted that per unit distributable cash flow for the combined company would range from ~41% accretive compared to ETE standalone to ~49% accretive compared to ETE standalone between 2019 and 2021. Using the same projections, for ETP, Barclays noted that pro forma per unit distributions for the combined company would be ~30% dilutive compared to ETP standalone in each of 2019, 2020, and 2021. For ETE, Barclays noted that per unit distributions for the combined company would be flat compared to ETE standalone in each of 2019, 2020, and 2021.

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The ETP Conflicts Committee selected Barclays because of its familiarity with ETP and ETE, and because of Barclays’ qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, knowledge of the industries in which ETP and ETE operate, as well as substantial experience in transactions comparable to the proposed transaction.

Barclays is acting as financial advisor to the ETP Conflicts Committee in connection with the proposed transaction. As compensation for its services in connection with the proposed transaction, ETP will pay Barclays a fee of $10.0 million, conditioned upon and payable upon closing of the proposed transaction, which is referred to as the “Transaction Fee.” In addition, ETP paid Barclays a fee of $2.5 million upon delivery of the opinion, which is referred to as the “Opinion Fee.” The Opinion Fee was not contingent upon the conclusion of Barclays’ opinion and the Opinion Fee is creditable against the Transaction Fee upon the closing of the proposed transaction. In addition, ETP has agreed to reimburse Barclays for certain of its expenses incurred in connection with the proposed transaction and to indemnify Barclays for certain liabilities that may arise out of its

 

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engagement by the ETP Conflicts Committee and the rendering of Barclays’ opinion. Barclays has performed various investment banking services for the ETP and ETE and their affiliates in the past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, in the past two years, Barclays has performed the following investment banking and financial services: (a) to ETP: (i) in September 2016, acted as sole bookrunner on Sunoco Logistics Partners L.P.’s (“SXL”) ~$652 million equity offering; (ii) in November 2016, acted as financial advisor to a special committee in connection with ETP’s merger with SXL; (iii) in August 2017, acted as lead left bookrunner on ETP’s ~$1 billion equity offering; (iv) in December 2017, acted as joint lead arranger and joint bookrunner on ETP’s $5 billion credit facilities and as a lender under the credit facilities; (v) in January 2018, as financial advisor to ETP in connection with the sale of its compression business; and (vi) acted as agent on ETP’s $1.0 billion at-the-market equity offering program; and (b) to ETE: (i) in January 2017, acted as lead placement agent on ETE’s ~$580 million private placement; (ii) in March 2017, acted as joint lead arranger and joint bookrunner on ETE’s $1.5 billion credit facility and as a lender under the credit facility; (iii) in January 2018, as buyside financial advisor to ETE; (iv) in March 2018, as initial purchaser on USAC’s, an affiliate of ETE, $725 million notes offering; (iv) in April 2018, acted as joint lead arranger and joint bookrunner on the USAC’s $1.6 billion credit facility and as a lender under the credit facility; (v) in April 2018, acted as lead placement agent on USAC’s $500 million private placement; (vi) acted as agent on ETE’s $1.0 billion at-the-market equity offering program; (vii) acted as agent on Sunoco’s, an affiliate of ETE, $400 million at-the-market equity offering program; and (viii) acted as a lender under Sunoco’s credit facility.

In addition, as part of Barclays’ ongoing investment banking coverage efforts for ETE, prior to Barclays’ engagement by the ETP Conflicts Committee, Barclays employees, including certain members of the Barclays team which represented the ETP Conflicts Committee in the transaction, had regularly met with ETE to discuss strategic and financing alternatives potentially available to ETE, including discussions regarding a potential business combination with ETP, and provided ETE with pitch materials and analyses with respect to such a possible combination. On July 25, 2018, prior to Barclays’ engagement by the ETP Conflicts Committee, it informed the ETP Conflicts Committee and RLF of such discussions and provided them with copies of such materials. Barclays also disclosed to the ETP Conflicts Committee and RLF information regarding its prior engagements since January 1, 2014 for ETP, ETE, and their affiliates and the amount and nature of the fees it received from such parties in a presentation dated July 25, 2018, and subsequently updated on August 1, 2018. See “The Merger—Background of the Merger” beginning on page 50 of this proxy statement/prospectus.

Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays and its affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of ETP, ETE and their respective affiliates for Barclays’ own account and for the accounts of Barclays’ customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

Reasons of the ETE Conflicts Committee and the ETE Board for the Merger

The ETE Conflicts Committee and the ETE Board viewed the following factors as generally positive or favorable in coming to their approval and determinations with respect to the merger:

 

   

the improvement of the combined partnership’s equity cost of capital through the elimination of ETP’s incentive distribution rights, which in turn is expected to enhance the combined partnership’s cash accretion from investments in organic growth projects and strategic M&A following the closing of the transaction;

 

   

the strength of the combined partnership’s balance sheet through the utilization of cash distribution savings to accelerate the reduction of debt and to fund a portion of ETP’s robust growth capital expenditure program;

 

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the expected investment grade credit ratings for the public debt of the combined partnership following the closing of the transaction;

 

   

the expectation that the merger will be immediately accretive to ETE’s distributable cash flow per unit and will increase ETE’s cash coverage ratio;

 

   

the simplification of the overall structure of the Energy Transfer family, which is expected to reduce complexity, improve transparency for investors, and further align economic interests within the Energy Transfer family;

 

   

the expectation that the transaction will result in longer-term distribution sustainability for the combined partnership;

 

   

the combined partnership will be structurally similar to its selected large cap diversified company peers, including Kinder Morgan and The Williams Companies;

 

   

the fact that the exchange ratio is fixed and therefore the percentage interest of the combined company to be owned immediately following the closing of the merger will be unaffected by changes in the trading prices for the ETE common units or the ETP common units;

 

   

the fact that no gain or loss should be recognized by ETE unitholders prior to the merger as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code); and

 

   

the ETE Board and the ETE Conflicts Committee’s belief that the issuance of the ETE Class A Units to ETE GP promotes the continuation of the long-term financial success of the combined partnership.

The ETE Board also based its determination to approve the merger agreement and the merger, in part, on the unanimous recommendation of the ETE Conflicts Committee that the ETE Board approve the merger agreement and the merger, following the ETE Conflicts Committee’s evaluation of the merger in consultation with its legal and financial advisors and with ETE management. The ETE Board also consulted with its legal advisors prior to approving the merger agreement and the merger.

The foregoing discussion is not intended to be exhaustive, and is only intended to address the principal factors considered by the ETE Conflicts Committee and the ETE Board in favor of the merger. In view of the number and variety of factors and the amount of information considered, the ETE Conflicts Committee and the ETE Board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the ETE Conflicts Committee and the ETE Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the ETE Conflicts Committee and the ETE Board may have given different weights to different factors. The ETE Conflicts Committee and the ETE Board made their determinations based on the totality of information presented to, and the investigation conducted by, the ETE Conflicts Committee and the ETE Board, respectively. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

Unaudited Financial Projections of ETE, ETP and the Combined Partnership

ETE and ETP do not as a matter of course make public projections as part of their standard forecasting process relating to earnings or other results. However, the management of ETE and ETP routinely prepare prospective financial information. This prospective financial information was subsequently provided to the ETE Board, the ETE Conflicts Committee, the ETP Board and the ETP Conflicts Committee, and to their respective advisors, including to Barclays as the financial advisor to the ETP Conflicts Committee, to assist them in connection with the evaluation and negotiation of the merger. The accompanying summary prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective

 

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financial information, but, in the view of ETE’s and ETP’s management was, based on certain growth assumptions, prepared on a reasonable basis, reflected the best currently available estimates and judgments, and presented, to the best of ETE’s and ETP’s management’s knowledge and belief, the expected course of action and the expected future financial performance of ETE and ETP. However, this information is not fact. None of the unaudited financial projections reflect any impact of the proposed transaction.

As discussed in more detail under “Interests of Directors and Executive Officers of ETP in the Merger—Existing Relationships of ETP Managing GP Officers and Directors with ETE,” there is significant overlap between the management teams of ETE and ETP, and there is also significant overlap in the assets and businesses underlying each entity’s financial performance. In addition, much of the prospective financial information of ETE is derived directly from the prospective financial information of ETP. For these reasons, ETE management and ETP management jointly prepared the prospective financial information set forth below.

Neither ETE’s nor ETP’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for the prospective financial information. The reports of the independent registered public accounting firm incorporated by reference into this proxy statement/prospectus relate to the historical audited financial information of ETE and ETP, respectively. Such reports do not extend to the unaudited financial projections and should not be read to do so.

In developing the unaudited financial projections set forth below, management of ETE and ETP made numerous material assumptions for the periods covered by the projections, including, but not limited to, the following:

 

   

the EBITDA, retained cash flow and maintenance capital expenditures from existing assets and business activities of ETP, Sunoco, USAC and Energy Transfer LNG;

 

   

the timing of permitting, construction and start-up of organic growth projects of ETP, Sunoco, USAC and Energy Transfer LNG, as well as the amounts and timing of capital expenditures and EBITDA associated with such projects;

 

   

the amount and timing of issuances of debt and equity securities by ETE, ETP, Sunoco, USAC and their respective subsidiaries, and the availability and cost of debt and equity capital to ETE, ETP, Sunoco, USAC and their respective subsidiaries, including the assumption that ETP retains its investment grade credit rating throughout the forecast period;

 

   

the amount and timing of distributions by each of ETE, ETP, Sunoco and USAC;

 

   

the prices and production of, and demand for, crude oil, natural gas, NGLs, and other hydrocarbon and petrochemical products, and the commodities markets, with the ETE Conflicts Committee and the ETE Board using the following commodity pricing assumptions for the years ended December 31, 2018, 2019, 2020 and 2021:

 

     2018      2019      2020      2021  

Henry Hub Natural Gas ($/mmbtu)

   $ 2.84      $ 2.78      $ 2.75      $ 2.80  

WTI Crude ($/bbl)

   $ 63.42      $ 58.97      $ 55.37      $ 53.10  

NGL Composite Price ($/gal) (1)

   $ 0.67      $ 0.62      $ 0.60      $ 0.60  

 

  (1)

NGL Composition: Ethane 42%, Propane 28%, Iso-Butane 6%, Normal Butane 11%, Natural Gasoline 13%;

 

   

the volumes of products handled and the margins associated with services and products provided to customers of ETP, Sunoco, USAC and Energy Transfer LNG; and

 

   

other general business, market and financial assumptions.

 

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All of these assumptions involve variables making them difficult to predict, and most are beyond the control of either ETE or ETP. Although management of ETE and ETP believe that there was a reasonable basis for the underlying assumptions related to the ETP Unaudited Financial Projections, ETE Unaudited Financial Projections and the unaudited financial projections of the combined partnership, which assume that the proposed merger is completed as of January 1, 2019 (together, the “Unaudited Financial Projections”) at the time such assumptions were made, any assumptions for near-term and long-term projected cases remain uncertain, and the risk of inaccuracy increases with the length of the forecast period. The estimates and assumptions underlying the Unaudited Financial Projections are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties that are outside of the control of ETE and ETP and could cause actual results to differ materially from those contained in the Unaudited Financial Projections, including, among other things, the matters described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 39 and 30, respectively. Accordingly, there can be no assurance that the projections necessarily are indicative of the actual future performance of ETE or ETP, or that actual results will not differ materially from those presented in the Unaudited Financial Projections. Inclusion of the Unaudited Financial Projections in this proxy statement/prospectus should not be regarded as a representation by any person that the results contained in the Unaudited Financial Projections will be achieved. The Unaudited Financial Projections were prepared on June 5, 2018, based on assumptions as of such date, and have not been updated since the date of preparation.

The Unaudited Financial Projections were prepared solely for internal use. Such projections are inherently subjective in nature, susceptible to interpretation and accordingly, contemplated results may not be achieved. While presented with numerical specificity, the Unaudited Financial Projections reflect numerous estimates and assumptions, as discussed above. Accordingly, there can be no assurance that the assumptions made in preparing any particular projection or any particular projection itself will prove accurate. There will be differences between actual and forecasted results, and the differences may be material. The risk that these uncertainties and contingencies could cause the assumptions to fail to be reflective of actual results is further increased given the length of time over which these assumptions apply. The assumptions in early periods have a compounding effect on the projections shown in later periods. Thus, any failure of an assumption to be reflective of actual results in an early period would have a greater effect on the projected results failing to be reflective of actual events in later periods. In light of the foregoing factors and the uncertainties inherent in the Unaudited Financial Projections, the unaffiliated ETP common unitholders are cautioned not to place undue reliance on the Unaudited Financial Projections.

The Unaudited Financial Projections are not included in this proxy statement/prospectus in order to induce any unaffiliated ETP common unitholders to vote in favor of any of the proposals at the ETP special meeting.

ETP Unaudited Financial Projections

 

     Year Ending December 31,  
     2018E      2019E      2020E      2021E  
     ($ in millions, except per unit amounts)  

Consolidated EBITDA (1)

   $ 8,293      $ 9,514      $ 9,794      $ 10,155  

Distributable cash flow attributable to ETP partners (2)

   $ 5,080      $ 5,944      $ 5,885      $ 6,094  

Distributable cash flow per ETP common unit (3)

   $ 2.60      $ 2.87      $ 2.78      $ 2.86  

 

(1)

Consolidated EBITDA is a non-GAAP financial performance measure that is defined as total partnership earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market

 

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  adjustments). Consolidated EBITDA reflects amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on ETP’s proportionate ownership. Consolidated EBITDA is reported on a consistent basis as Adjusted EBITDA in ETP’s public filings with the SEC.
(2)

Distributable cash flow attributable to ETP partners is a non-GAAP financial performance measure that represents the distributable cash flow accruing to the partners of ETP and excludes amounts expected to be payable as distributions to ETP preferred unitholders. Distributable cash flow attributable to ETP partners is defined as net income, adjusted for certain non-cash items, less distributions to preferred unitholders and maintenance capital expenditures. Non-cash items include depreciation, depletion and amortization, non-cash compensation expense, amortization included in interest expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and deferred income taxes. For subsidiaries with publicly traded equity interests, distributable cash flow attributable to ETP partners includes distributions to be received by the parent company with respect to the periods presented. For consolidated joint ventures or similar entities, where the noncontrolling interest is not publicly traded, distributable cash flow attributable to ETP partners is net of distributions to be paid by the subsidiary to the noncontrolling interests.

(3)

Distributable cash flow per ETP common unit is a non-GAAP financial performance measure that represents the distributable cash flow accruing to each ETP common unit.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. ETP’s calculation of these non-GAAP measures may differ from others in its industry and is not necessarily comparable with similar titles used by other companies.

NEITHER ETE NOR ETP INTENDS TO UPDATE OR OTHERWISE REVISE THE ETP UNAUDITED FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH ETP UNAUDITED FINANCIAL PROJECTIONS ARE NO LONGER APPROPRIATE.

ETE Unaudited Financial Projections

 

     Year Ending December 31,  
     2018E      2019E      2020E      2021E  
     ($ in millions, except per unit amounts)  

Distributable cash flow (1)

   $ 1,636      $ 1,718      $ 1,797      $ 1,839  

Distributable cash flow per ETE common unit (2)

   $ 1.41      $ 1.48      $ 1.55      $ 1.58  

 

(1)

Distributable cash flow is a non-GAAP financial performance measure that represents the distributable cash flow accruing to ETE.

(2)

Distributable cash flow per ETE common unit is a non-GAAP financial performance measure that represents the distributable cash flow accruing to each ETE common unit on a fully diluted basis.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. ETE’s calculation of these non-GAAP measures may differ from others in its industry and is not necessarily comparable with similar titles used by other companies.

 

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NEITHER ETE NOR ETP INTENDS TO UPDATE OR OTHERWISE REVISE THE ETE UNAUDITED FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH ETE UNAUDITED FINANCIAL PROJECTIONS ARE NO LONGER APPROPRIATE.

Combined Partnership Unaudited Financial Projections

 

     Year Ending December 31,  
     2019E      2020E      2021E  
     ($ in millions, except per unit amounts)  

Consolidated Adjusted EBITDA (1)

   $ 10,423      $ 10,692      $ 11,080  

Distributable cash flow attributable to ETE partners (2)

   $ 5,879      $ 5,818      $ 6,118  

Distributable cash flow per common unit (3)

   $ 2.22      $ 2.19      $ 2.31  

 

(1)

Consolidated Adjusted EBITDA is a non-GAAP financial performance measure that is defined as total partnership earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Consolidated Adjusted EBITDA reflects amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on ETE’s proportionate ownership. For avoidance of doubt, Consolidated Adjusted EBITDA includes 100% of the amounts related to both Sunoco and USAC.

(2)

Distributable cash flow attributable to ETE partners is defined as net income, adjusted for certain non-cash items, less distributions to preferred unitholders and maintenance capital expenditures. Non-cash items include depreciation, depletion and amortization, non-cash compensation expense, amortization included in interest expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and deferred income taxes. For subsidiaries with publicly traded equity interests, distributable cash flow attributable to ETE partners includes distributions to be received by the parent company with respect to the periods presented. For consolidated joint ventures or similar entities, where the noncontrolling interest is not publicly traded, distributable cash flow attributable to ETE partners is net of distributions to be paid by the subsidiary to the noncontrolling interests.

(3)

Distributable cash flow per ETE common unit is a non-GAAP financial performance measure that represents the distributable cash flow accruing to each ETE common unit on a fully diluted basis.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. ETE’s calculation of these non-GAAP measures may differ from others in its industry and is not necessarily comparable with similar titles used by other companies.

NEITHER ETE NOR ETP INTENDS TO UPDATE OR OTHERWISE REVISE THE UNAUDITED FINANCIAL PROJECTIONS OF THE COMBINED PARTNERSHIP TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH UNAUDITED FINANCIAL PROJECTIONS OF THE COMBINED PARTNERSHIP ARE NO LONGER APPROPRIATE.

 

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Interests of Directors and Executive Officers of ETP in the Merger

In considering the recommendation of the ETP Board that you vote to adopt the merger agreement, you should be aware that aside from their interests as unitholders of ETP, ETP’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of ETP common unitholders generally. The members of the ETP Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the unitholders of ETP that the merger agreement be adopted. See “—Background of the Merger” and “—Recommendation of the ETP Board; Reasons for the Merger.” ETP’s common unitholders should take these interests into account in deciding whether to vote “FOR” the adoption of the merger agreement. These interests are described in more detail below, and certain of them are quantified in the narrative and the table below.

Existing Relationships of ETP Managing GP Officers and Directors with ETE

ETE, as the sole member of ETP Managing GP, is entitled under the limited liability company agreement of ETP Managing GP to appoint all of the directors of ETP Managing GP. Accordingly, ETE has appointed to the ETP Board and has the ability to remove from the ETP Board each of the directors of ETP Managing GP, including, subject to the terms of the merger agreement restricting the removal of ETP Conflicts Committee members during the pendency of the merger agreement, each of the members of the ETP Conflicts Committee.

In addition, certain of the directors and executive officers of ETP Managing GP also serve as directors or executive officers of ETE GP, the general partner of ETE, as set forth below:

 

Name

  

Position at ETP Managing GP

  

Position at ETE GP

Kelcy L. Warren

   Chief Executive Officer and Chairman of the Board of Directors    Chairman of the Board of Directors

Marshall S. (Mackie) McCrea, III

   Chief Commercial Officer and Director    Group Chief Operating Officer, Chief Commercial Officer and Director

Matthew S. Ramsey

   President, Chief Operating Officer and Director    Director

Thomas E. Long

   Chief Financial Officer    Group Chief Financial Officer

In addition, one or more of the directors who are currently on the ETP Board and not on the ETE Board may join the ETE Board following the merger.

 

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Economic Interests of ETP Managing GP Officers and Directors in ETP and ETE

Certain of the directors and executive officers of ETP Managing GP hold ETE common units and ETP common units, and thus may have economic interests in the merger that are different from ETP common unitholders generally. Set forth below is a summary of the common unit ownership of each of the directors and executive officers of ETP Managing GP in ETP and ETE, as of September 6, 2018, the most recent practicable date.

 

Name

   ETE Common Units
Beneficially Owned
     ETP Common Units
Beneficially Owned
 

Kelcy L. Warren

     232,991,658        29,566,773  

Michael K. Grimm

     —          69,271  

Marshall S. (Mackie) McCrea, III

     1,311,148        330,430  

Matthew S. Ramsey

     64,637        23,033  

David K. Skidmore

     4,960        45,300  

Thomas E. Long

     —          51,869  

James M. Wright, Jr.

     10,352        33,893  

A. Troy Sturrock

     1,000        19,937  

W. Brett Smith

     14,800        15,845  

In addition, certain of the executive officers of ETP Managing GP have been granted phantom unit awards in ETE. The phantom unit awards include distribution equivalent rights that entitle the holders to receive, with respect to each ETE common unit subject to such award that has not either vested or been forfeited, a cash payment equal to each cash distribution per ETE common unit made by ETE to its unitholders. Upon vesting of the ETE phantom unit awards, such phantom units will be settled in ETE common units or cash equal to the fair market value of the ETE common units that would otherwise be delivered. As of September 6, 2018, the most recent practicable date, the executive officers of ETP Managing GP hold ETE phantom unit awards as follows: Mr. McCrea (537,379), Mr. Ramsey (223,908) and Mr. Long (121,074).

Treatment of ETP Equity-Based Awards

Under the merger agreement, as with all holders of ETP restricted units and/or ETP restricted phantom units, each unvested award of ETP restricted units and/or ETP restricted phantom units held by ETP’s directors and executive officers that is outstanding as of immediately prior to the effective time will cease to relate to or represent a right to receive ETP common units and will be converted, at the effective time, into the right to receive a comparable restricted equity award relating to ETE common units on the same terms and conditions as were applicable to the corresponding award of ETP restricted units and/or ETP restricted phantom units, except that the number of ETE common units covered by such comparable award will be equal to the number of ETP common units covered by the corresponding award of ETP restricted units multiplied by the exchange ratio, rounded up to the nearest whole unit. None of ETP’s directors hold ETP restricted phantom units.

 

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As of September 6, 2018, the ETP executive officers and directors held the following numbers of outstanding ETP restricted units and/or ETP restricted phantom units:

 

Name

   Number of
Outstanding ETP
Restricted Units

and/or ETP
Restricted
Phantom Units
 

Kelcy L. Warren

     0  

Marshall S. (Mackie) McCrea, III

     732,546  

Matthew S. Ramsey

     259,223  

Thomas E. Long

     112,757  

James M. Wright

     129,942  

A. Troy Sturrock

     59,383  

 

Name

   Number of
Outstanding ETP
Restricted Units
 

Michael K. Grimm

     15,828  

David K. Skidmore

     15,828  

W. Brett Smith

     2,500  

Indemnification and Insurance

The ETP partnership agreement requires ETP, among other things, to indemnify the directors and executive officers of ETP Managing GP, the general partner of ETP GP, against certain liabilities that may arise by reason of their service as directors or officers.

In addition, the merger agreement provides that, for a period of six years from the effective time, ETP, the surviving entity, will indemnify, defend and hold harmless each officer or director of ETP, ETP Managing GP, ETE, ETE GP or any of its subsidiaries and also with respect to any such person, in their capacity as a director, officer, employee, member, trustee or fiduciary of another corporation, foundation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise (whether or not such other entity or enterprise is affiliated with ETP) serving at the request of or on behalf of ETP, ETP Managing GP, ETE, ETE GP or any of its subsidiaries and together with such person’s heirs, executors or administrators against any cost or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages or liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative, investigative or otherwise and whether or not such claim, action, suit, proceeding or investigation results in a formal civil or criminal litigation or regulatory action.

In addition, pursuant to the terms of the merger agreement, ETP’s, ETP Managing GP’s, ETE’s or ETE GP’s directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies from the surviving entity. Such indemnification and insurance coverage is further described in the section entitled “The Merger Agreement—Indemnification; Directors’ and Officers’ Insurance.”

Severance Plan

ETP GP and its affiliates have not entered into any employment agreements with executive officers of ETP, and the executive officers are not expected to enter into any such agreements in connection with the merger. Executive officers participate in the Energy Transfer Partners GP, L.P. Severance Plan (the “Severance Plan”). The Severance Plan provides for payment of certain severance benefits in the event of a Qualifying Termination (as that term is defined in the Severance Plan). In general, the Severance Plan provides payment of two weeks of base salary for each year or partial year of employment service, up to a maximum of 52 weeks or one year of base salary (with a minimum of four weeks of base salary) and up to three months of continued group

 

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health insurance coverage. The Severance Plan also provides that additional benefits in addition to those provided under the Severance Plan may be paid based on special circumstances, which additional benefits will be unique and non-precedent setting. The Severance Plan is available to all salaried employees on a nondiscriminatory basis and is not related to or otherwise based on the merger. The merger is not currently expected to result in a Qualifying Termination for any of ETP’s executive officers; however, benefits would be payable under the Severance Plan if an executive officer does incur a Qualifying Termination before, in connection with, or after the consummation of the merger.

Compensation of ETP’s Executive Officers

As of the date of this filing, no compensation that is based on or otherwise relates to the merger is expected to be paid or become payable to ETP’s executive officers and the merger is not expected to result in accelerated vesting of any equity-based awards held by ETP’s executive officers.

Interests of ETE in the Merger

ETE owns ETP Managing GP and ETP GP, and controls ETP through its ownership of these two entities. ETE also owns all of the incentive distribution rights in ETP, as well as approximately 2.4% of the outstanding ETP common units and all of the Class I Units and Class J Units. ETE has different economic interests in the merger than ETP common unitholders generally due to, among other things, ETE’s ownership of the incentive distribution rights in ETP prior to the merger and the fact that ETE is the acquiring entity in the merger. Under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE and its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

No Dissenters’ Rights or Appraisal Rights

Neither appraisal rights nor dissenters’ rights are available in connection with the merger under the Delaware LP Act, the merger agreement or the ETP partnership agreement.

No ETE Unitholder Approval Required

ETE unitholders are not required to adopt the merger agreement or approve the merger or the issuance of ETE common units or ETE Class A Units in connection with the merger.

Accounting Treatment of the Merger

ETE controls ETP through its ownership of ETP Managing GP and ETP GP and therefore currently consolidates the operations of ETP into ETE’s financial statements. Subsequent to the merger, ETE will continue to present consolidated financial statements that reflect the historical consolidated financial statements of ETP. The merger will be accounted for as an equity transaction and will be reflected in the consolidated financial statements as ETE’s acquisition of ETP’s noncontrolling interest. The carrying amounts of ETE’s and ETP’s assets and liabilities will not be adjusted, nor will a gain or loss be recognized as a result of the merger.

Regulatory Approvals and Clearances Required for the Merger

Consummation of the merger is subject to the expiration or termination of the applicable waiting period under the HSR Act, if any, and obtaining any approval or consent under any other applicable antitrust law. Early termination of the waiting period under the HSR Act was granted on September 4, 2018.

At any time before or after the effective time, the Antitrust Division of the Department of Justice (the “Antitrust Division”), the Federal Trade Commission or another U.S. or foreign governmental authority could take action under the antitrust laws, including seeking to prevent the merger, to rescind the merger or to

 

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conditionally approve the merger upon the divestiture of assets of ETE, ETP or their subsidiaries, or subject to other remedies. U.S. state attorneys general or other state or local regulators could also take action under the antitrust laws as they deem necessary or desirable in the public interest including without limitation seeking to enjoin the completion of the merger, seeking to rescind the merger or permitting completion subject to concessions, conditions or divestitures. Foreign governmental authorities may take action under their applicable antitrust, competition or merger control laws including without limitation seeking to prevent, delay or enjoin the completion of the merger, seeking to rescind the merger, or permitting completion subject to concessions, conditions or divestitures. Private parties may also seek to take legal action under the antitrust laws under some circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

ETE and ETP have agreed to (including to cause their respective subsidiaries to) use their reasonable best efforts to resolve any objections that a governmental authority may assert under antitrust laws with respect to the transactions contemplated by the merger agreement, including the merger, and to avoid or eliminate each and every impediment under any antitrust law that may be asserted by any governmental authority with respect to the merger, in each case, so as to enable the closing of the merger to occur as promptly as practicable and in any event no later than the outside date, and including agreeing to dispose or hold separate the businesses, operations or assets of ETE, ETP or their subsidiaries, or agreeing to restrictions on the businesses of ETE, ETP or their subsidiaries. Notwithstanding the foregoing, ETE and ETP have both agreed not to offer, negotiate or commit to any disposal, hold separate or other restriction related to its or its subsidiaries’ businesses, operations or assets without the other party’s prior written consent.

Directors and Executive Officers of ETE After the Merger

ETE expects that the directors and executive officers of ETE GP immediately prior to the merger will continue in their existing management roles of ETE GP after the merger, except that (i) Kelcy L. Warren, Chairman and Chief Executive Officer of ETP and Chairman of ETE, is expected to become the Chairman and Chief Executive Officer of ETE, (ii) John W. McReynolds, President of ETE, is expected to become a Special Advisor of ETE, (iii) Marshall S. (Mackie) McCrea, III, Group Chief Operating Officer and Chief Commercial Officer of ETE, is expected to become the President and Chief Commercial Officer of ETE and, (iv) Thomas E. Long, Group Chief Financial Officer of ETE, is expected to become Executive Vice President and Chief Financial Officer of ETE. Thomas P. Mason, Executive Vice President and General Counsel of ETE is expected to continue in the same role.

Listing of ETE Common Units; Delisting and Deregistration of ETP Common Units

ETE common units are currently listed on the NYSE under the ticker symbol “ETE.” It is a condition to closing that the ETE common units to be issued in the merger to ETP common unitholders be approved for listing on the NYSE, subject to official notice of issuance. Following the consummation of the merger, it is expected that ETE will change its name to “Energy Transfer LP” and apply to continue the listing of its common units on the NYSE under the new symbol “ET.”

ETP common units are currently listed on the NYSE under the ticker symbol “ETP,” while the Series C Preferred Units and Series D Preferred Units in ETP are currently listed on the NYSE under the ticker symbols “ETPprC” and “ETPprD,” respectively. If the merger is completed, ETP common units will cease to be listed on the NYSE and will be deregistered under the Exchange Act. However, the Series C Preferred Units and the Series D Preferred Units in ETP will continue to be listed on the NYSE under the ticker symbols “ETPprC” and “ETPprD.” At the closing of the merger, it is expected that ETP will change its name to “Energy Transfer Operating, L.P.”

 

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Ownership of ETE After the Merger

ETE will issue approximately 1,458,755,000 ETE common units to former ETP common unitholders pursuant to the merger agreement and approximately 647,080,000 ETE Class A Units to ETE GP. Based on the number of ETE common units outstanding as of the date of this proxy statement/prospectus, immediately following the completion of the merger, ETE expects to have approximately 2,616,961,000 common units outstanding. ETP common unitholders are therefore expected to hold approximately 56% of the aggregate number of ETE common units outstanding immediately after the merger. Holders of ETE common units (similar to holders of ETP common units) are not entitled to elect ETE’s general partner or the directors of the ETE Board and have only limited voting rights on matters affecting ETE’s business. Further, holders of ETE common units and ETE Class A Units will generally vote together, as a single class, on any matter on which such ETE unitholders are entitled to vote. Please read “Comparison of Rights of ETE Common Unitholders and ETP Common Unitholders” for additional information.

Restrictions on Sales of ETE Common Units Received in the Merger

ETE common units issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act or the Exchange Act, except for ETE common units issued to any ETP common unitholder who may be deemed to be an “affiliate” of ETE after the completion of the merger. This proxy statement/prospectus does not cover resales of ETE common units received by any person upon the completion of the merger, and no person is authorized to make any use of this proxy statement/prospectus in connection with any resale.

 

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PROPOSAL 1: THE MERGER AGREEMENT

The following describes the material provisions of the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated by reference herein. The description in this section and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. ETE and ETP encourage you to read carefully the merger agreement in its entirety before making any decisions regarding the merger as it is the legal document governing the merger.

The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. Factual disclosures about ETE, ETP or any of their respective subsidiaries or affiliates contained in this proxy statement/prospectus or their respective public reports filed with the SEC may supplement, update or modify the factual disclosures about ETE, ETP or their respective subsidiaries or affiliates contained in the merger agreement and described in this summary. The representations, warranties and covenants made in the merger agreement by ETE and ETP were qualified and subject to important limitations agreed to by ETE and ETP in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to unitholders and reports and documents filed with the SEC and in some cases were qualified by confidential disclosures that were made by each party to the other, which disclosures are not reflected in the merger agreement or otherwise publicly disclosed. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement/prospectus. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone.

The Merger

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for the merger of ETE Merger Sub with and into ETP, with ETP surviving the merger as a subsidiary of ETE. ETP, which is sometimes referred to following the merger as the surviving entity, will survive the merger, and the separate limited liability company existence of ETE Merger Sub will cease. After the completion of the merger, the certificate of limited partnership of ETP in effect immediately prior to the effective time and as amended by the certificate of merger will remain unchanged and will be the certificate of limited partnership of the surviving entity from and after the effective time, and thereafter may be amended in accordance with its terms or by applicable law. In addition, at the effective time, the ETP partnership agreement, as amended by the ETP LPA amendment, will remain unchanged and will be the agreement of limited partnership of the surviving entity from and after the effective time, and thereafter may be amended in accordance with its terms or by applicable law.

Following the consummation of the merger, it is expected that ETE will change its name to “Energy Transfer LP” and apply to continue the listing of its common units on the NYSE under the new symbol “ET.” At the closing of the merger, ETP will change its name to “Energy Transfer Operating, L.P.”

Effective Time; Closing

The effective time will be at such time that ETP files with the Secretary of State of the State of Delaware a certificate of merger, executed in accordance with the relevant provisions of the Delaware LP Act and the

 

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Delaware Limited Liability Company Act or at such other date or time as is agreed to by ETE and ETP and specified in the certificate of merger.

Unless the parties agree otherwise, the closing of the merger will occur at 9:00 a.m., Eastern Time, on the second business day after the satisfaction or waiver of the conditions to the merger provided in the merger agreement (other than conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of those conditions), or at such other date or time as ETE and ETP agree. For further discussion of the conditions to the merger, see “—Conditions to Consummation of the Merger.”

ETE and ETP currently expect to complete the merger shortly following the conclusion of the special meeting, subject to receipt of required unitholder and regulatory approvals and to the satisfaction or waiver of the other conditions to the transactions contemplated by the merger agreement described below.

Pre-Closing Transactions

Subject to the conditions to the merger being satisfied or waived (other than conditions that by their nature are to be satisfied at closing, but subject to the satisfaction or waiver of those conditions), ETE, ETP Managing GP and ETP will, and will cause their respective affiliates to, cause the following pre-closing transactions to occur immediately prior to the effective time in the order set forth below:

 

   

ETE will contribute 2,263,158 Sunoco common units to ETP in exchange for 2,874,275 ETP common units;

 

   

ETP Managing GP will contribute 100% of the limited liability company interests in Sunoco GP to ETP in exchange for 42,812,389 ETP common units;

 

   

ETP Managing GP will contribute 12,466,912 USAC common units and 100% of the limited liability company interests in USA Compression GP to ETP in exchange for 16,134,903 ETP common units;

 

   

ETE will contribute the Lake Charles LNG Interests to ETP in exchange for 37,557,815 ETP common units;

 

   

ETE and ETP Managing GP will cause the conversion of the incentive distribution rights in ETP into, or cause ETP to purchase such incentive distribution rights in exchange for, 1,168,205,710 ETP common units;

 

   

ETE and ETP Managing GP will cause the cancellation of the Class I Units and Class J Units;

 

   

ETP Managing GP will cause the conversion of the approximate 1.0% economic general partner interest in ETP to a non-economic general partner interest in ETP and cause ETP to issue 18,448,341 ETP common units to ETP GP; and

 

   

in connection with the actions contemplated in the fifth, sixth and seventh bullets above, the ETP partnership agreement will be amended as set forth in ETP LPA amendment.

The ETP common units issued in connection with the pre-closing transactions will be issued after the record date for the special meeting and therefore will not be entitled to vote at the special meeting.

Conditions to Consummation of the Merger

ETE and ETP may not complete the merger unless each of the following conditions is satisfied or waived, if waiver is permitted by applicable law:

 

   

the merger agreement and the transactions contemplated thereby, including the merger, must have been adopted by the affirmative vote or consent of the holders of at least a majority of the outstanding ETP common units;

 

   

the merger agreement and the transactions contemplated thereby, including the merger, must have been adopted by the affirmative vote or consent of at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders;

 

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any waiting period applicable to the merger under the HSR Act must have been terminated or expired, and any required approval or consent under any other applicable antitrust law must have been obtained (early termination of the waiting period under the HSR Act was granted on September 4, 2018);

 

   

no law, injunction, judgment, ruling or agreement enacted, promulgated, issued, entered, amended, enforced by, or entered into with any governmental authority will be in effect enjoining, restraining, preventing or prohibiting the consummation of the transactions contemplated by the merger agreement or making the consummation of such transactions illegal, and no proceeding with any governmental authority regarding the transactions contemplated by the merger agreement will be threatened or pending;

 

   

the registration statement of which this proxy statement/prospectus forms a part must have been declared effective by the SEC and must not be subject to any stop order suspending the effectiveness of the registration statement or proceedings for that purpose initiated or threatened by the SEC;

 

   

the ETE common units to be issued in the merger must have been approved for listing on the NYSE, subject to official notice of issuance;

 

   

ETP having received an opinion of its counsel, Vinson & Elkins L.L.P., to the effect that at least 90% of the gross income of ETP for all of the calendar year that immediately precedes the calendar year that includes the closing date and each calendar quarter of the calendar year that includes the closing date for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code; and

 

   

ETE having received an opinion of its counsel, Latham & Watkins LLP, to the effect that (i) at least 90% of the gross income of ETE for all of the calendar year that immediately precedes the calendar year that includes the closing date and each calendar quarter of the calendar year that includes the closing date for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code and (ii) at least 90% of the combined gross income of each of ETE and ETP for all of the calendar year that immediately precedes the calendar year that includes the closing date and each calendar quarter of the calendar year that includes the closing date for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code.

The obligations of ETE and ETE Merger Sub to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

   

the representations and warranties of ETP in the merger agreement being true and correct in all respects both when made and at and as of the date of the closing of the merger (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to material adverse effect or materiality contained in any individual representation or warranty), does not have and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on ETP (apart from certain identified representations and warranties (i) that there will not have been a material adverse effect on ETP from December 31, 2017 through the closing date, with respect to the authority to execute the merger agreement and consummate the transactions contemplated thereby; (ii) that the adoption of the merger agreement by the affirmative vote or consent of the holders of at least a majority of the outstanding ETP common units is the only approval of the holders of any outstanding equity interests in ETP that is required for approval of the transactions contemplated by the merger agreement, which in each case must be true and correct in all respects; and (iii) with respect to ETP’s capitalization, which must be true and correct in all respects other than immaterial misstatements and omissions);

 

   

ETP having performed, in all material respects, all obligations required to be performed by it under the merger agreement;

 

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the receipt of one or more certificates executed by an executive officer of ETP and an authorized signatory of ETP GP certifying that the two preceding conditions have been satisfied; and

 

   

ETE having received an opinion of its counsel, Latham & Watkins LLP, to the effect that for U.S. federal income tax purposes (i) ETE should not recognize any income or gain as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code) and (ii) no gain or loss should be recognized by holders of ETE common units as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code).

The obligations of ETP to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

   

the representations and warranties of ETE and ETE Merger Sub in the merger agreement being true and correct in all respects both when made and at and as of the date of the closing of the merger, except to the extent expressly made as of an earlier date, in which case as of such date, except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to material adverse effect or materiality contained in any individual representation or warranty), does not have and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on ETE (apart from certain identified representations and warranties (i) providing that there will not have been a material adverse effect on ETE from December 31, 2017 through the closing date and with respect to the authority to execute the merger agreement and consummate the transactions contemplated thereby, which must be true and correct in all respects, and (ii) with respect to ETE’s capitalization, which must be true and correct in all respects other than immaterial misstatements and omissions);

 

   

ETE and ETE Merger Sub having performed, in all material respects, all obligations required to be performed by them under the merger agreement;

 

   

the receipt of one or more certificates executed by an executive officer of ETE and an authorized signatory of ETE GP and ETE Merger Sub certifying that the two preceding conditions have been satisfied;

 

   

ETP having received an opinion of its counsel, Vinson & Elkins L.L.P., to the effect that for U.S. federal income tax purposes (i) ETP should not recognize any income or gain as a result of the merger and (ii) no gain or loss should be recognized by holders of ETP common units as a result of the merger (other than any gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code or any deemed sale of ETE common units pursuant to the withholding provisions of the merger agreement and except to the extent that any Section 707 Consideration (as defined below) causes the merger to be treated as a “disguised sale”); and

 

   

ETE GP having executed and delivered to ETE the ETE LPA amendment, which provides for the establishment and issuance of the ETE Class A Units to ETE GP.

For purposes of the merger agreement, the term “material adverse effect” means, when used with respect to a party to the merger agreement, any change, effect, event or occurrence that, individually or in the aggregate, (x) has had or would reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of such party or its subsidiaries, taken as a whole, or (y) prevents or materially impedes, interferes with or hinders the consummation of the transactions contemplated by the merger agreement, including the merger, on or before the outside date; provided, however, that any adverse changes, effects, events or occurrences resulting from or due to any of the following will be disregarded in determining whether there has been a material adverse effect: (i) changes, effects, events or occurrences generally affecting the United States or global economy, the financial, credit, debt, securities or other capital markets or political, legislative or regulatory conditions or changes in the industries in which such party operates; (ii) the announcement or pendency of the merger agreement or the transactions contemplated thereby or the performance of the merger agreement (including, for the avoidance of doubt, performance of the parties’ reasonable best efforts obligations

 

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under the merger agreement in connection with obtaining regulatory approval); (iii) any change in the market price or trading volume of the limited partner interests, shares of common stock or other equity securities of such party (it being understood and agreed that the foregoing will not preclude any other party to the merger agreement from asserting that any facts or occurrences giving rise to or contributing to such change that are not otherwise excluded from the definition of material adverse effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect); (iv) acts of war or terrorism (or the escalation of the foregoing) or natural disasters or other force majeure events; (v) changes in any laws or regulations applicable to such party or applicable accounting regulations or principles or the interpretation thereof; (vi) any legal proceedings commenced by or involving any current or former member, partner or unitholders of such party (on their own or on behalf of such party) arising out of or related to the merger agreement or the transactions contemplated thereby; (vii) changes, effects, events or occurrences generally affecting the prices of oil, natural gas, natural gas liquids or coal or other commodities; (viii) any failure of a party to meet any internal or external projections, forecasts or estimates of revenues, earnings or other financial or operating metrics for any period (it being understood and agreed that the foregoing will not preclude any other party to the merger agreement from asserting that any facts or occurrences giving rise to or contributing to such failure that are not otherwise excluded from the definition of “material adverse effect” should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect); and (ix) the taking of any action required by the merger agreement; provided, however, that changes, effects, events or occurrences referred to in clauses (i), (iv), (v) and (vii) above will be considered for purposes of determining whether there has been or would reasonably be expected to be a material adverse effect if and to the extent such state of affairs, changes, effects, events or occurrences have had or would reasonably be expected to have a disproportionate adverse effect on such party and its subsidiaries, taken as a whole, as compared to other companies of similar size operating in the industries in which such party and its subsidiaries operate. Notwithstanding the foregoing, any state of affairs, changes, effects, events or occurrences (or the facts underlying such state of affairs, changes, effects, events or occurrences) to which ETE has knowledge as of the date of the merger agreement will not constitute a material adverse effect with respect to ETE.

ETP Common Unitholder Approval

ETP has agreed to hold a special meeting of its common unitholders as soon as is practicable after the date of the merger agreement for the purpose of such common unitholders voting on the adoption of the merger agreement and the transactions contemplated thereby, including the merger. Unless terminated pursuant to its terms, the merger agreement requires ETP to submit the merger agreement to a common unitholder vote (i) even if the ETP Board no longer recommends adoption of the merger agreement and (ii) irrespective of the commencement, public proposal, public disclosure or communication to ETP of any alternative proposal (as described below). In addition, unless the ETP Board has effected an adverse recommendation change in accordance with the merger agreement as described in “—Change in ETP Board Recommendation,” ETP has agreed to use reasonable best efforts to solicit from its common unitholders proxies in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof. The ETP Board has approved the merger agreement and the transactions contemplated thereby, including the merger, and authorized that the merger agreement be submitted to the common unitholders of ETP for their consideration.

For purposes of the merger agreement, the term “alternative proposal” means any inquiry, proposal or offer from any person or “group” (as defined in Section 13(d) of the Exchange Act), other than ETE, its subsidiaries and their respective affiliates, relating to any (i) direct or indirect acquisition (whether in a single transaction or a series of related transactions), of assets of ETP and its subsidiaries equal to 15% or more of ETP’s consolidated assets or to which 15% or more of ETP’s revenues or earnings on a consolidated basis are attributable, (ii) direct or indirect acquisition (whether in a single transaction or a series of related transactions) of beneficial ownership (within the meaning of Section 13 under the Exchange Act) of 15% or more of any class of equity securities of ETP, (iii) tender offer or exchange offer that if consummated would result in any person or “group” (as defined in Section 13(d) of the Exchange Act) beneficially owning 15% or more of any class of equity securities of ETP

 

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or (iv) merger, consolidation, unit exchange, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving ETP or any of its subsidiaries which is structured to permit any person or “group” (as defined in Section 13(d) of the Exchange Act) to acquire beneficial ownership of at least 15% of ETP’s consolidated assets, net income, net expenses, revenue or equity interests; in each case, other than the transactions contemplated by the merger agreement.

No Solicitation by ETP of Alternative Proposals

The merger agreement contains detailed provisions prohibiting ETP from seeking an alternative proposal to the merger. Under these “no solicitation” provisions, ETP has agreed that it will not, and will cause its subsidiaries not to, and use its reasonable best efforts to cause its and its subsidiaries’ directors, officers, employees, investment bankers, financial advisors, attorneys, accountants, agents and other representatives not to, directly or indirectly:

 

   

solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquiries or any proposals that constitute or could reasonably be expected to lead to an alternative proposal;

 

   

grant any waiver or release of any standstill or similar agreement with respect to any units of ETP or of any of its subsidiaries;

 

   

except as permitted by the merger agreement, enter into any confidentiality agreement, merger agreement, letter of intent, agreement in principle, unit purchase agreement, asset purchase agreement or unit exchange agreement, option agreement or other similar agreement relating to an alternative proposal; or

 

   

withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to ETE, the recommendation of the ETP Board that its common unitholders adopt the merger agreement or publicly recommend the approval or adoption of, or publicly approve or adopt, or propose to publicly recommend, approve or adopt, any alternative proposal, or fail to recommend against acceptance of any tender offer or exchange offer for ETP common units within 10 business days after commencement of such offer, or resolve or agree to take any of the foregoing actions.

The merger agreement further provides that within five business days of receipt of a written request of ETE following the receipt by ETP of any alternative proposal, ETP must publicly reconfirm the ETP Board recommendation; provided, that, in the event ETE requests such public reconfirmation of the ETP Board recommendation, ETP may not unreasonably withhold, delay (beyond the five business day period) or condition the public reconfirmation of the ETP Board recommendation and provided, further, that ETE will not be permitted to make such request on more than one occasion in respect of each alternative proposal and each material modification to an alternative proposal, if any (the failure to take the foregoing action, collectively with the taking of either of the actions noted in bullets three and four above, are each referred to herein as an “adverse recommendation change”).

In addition, the merger agreement requires ETP and its subsidiaries to (i) cease and cause to be terminated any discussions or negotiations with any persons conducted prior to the execution of the merger agreement regarding an alternative proposal, (ii) request the return or destruction of all confidential information previously provided to any such persons and (iii) immediately prohibit any access by any persons (other than ETE and its representatives) to any physical or electronic data room relating to a possible alternative proposal.

Notwithstanding these restrictions, the merger agreement provides that, under specified circumstances at any time prior to ETP common unitholders and unaffiliated ETP common unitholders voting in favor of adopting the merger agreement, ETP may furnish information, including confidential information, with respect to it and its subsidiaries to, and participate in discussions or negotiations with a third party, if (i) ETP has received a written alternative proposal from such third party that the ETP Board (upon the recommendation of the ETP Conflicts Committee) believes is bona fide, (ii) the ETP Board (upon the recommendation of the ETP Conflicts

 

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Committee), after consultation with its financial advisors and outside legal counsel, determines in good faith that (A) such alternative proposal constitutes or could reasonably be expected to lead to or result in a superior proposal and (B) failure to furnish such information or participate in such discussions would be inconsistent with the ETP Board’s duties under applicable law, as modified by the ETP partnership agreement, and (iii) such alternative proposal did not result from a material breach of the no solicitation provisions in the merger agreement.

ETP has also agreed in the merger agreement that it (i) will promptly, and in any event within 24 hours after receipt, notify ETE of any alternative proposal or any request for information or inquiry with regard to any alternative proposal and the identity of the person making any such alternative proposal, request or inquiry (including providing ETE with copies of any written materials received from or on behalf of such person relating to such proposal, offer, request or inquiry) and (ii) will provide ETE with the terms, conditions and nature of any such alternative proposal, request or inquiry. In addition, ETP agrees to keep ETE reasonably informed of all material developments affecting the status and terms of any such alternative proposals, offers, inquiries or requests (and promptly provide ETE with copies of any material written materials received by it or that it has delivered to any third party making an alternative proposal that relate to such proposals, offers, requests or inquiries) and of the status of any such discussions or negotiations.

The merger agreement permits ETP or the ETP Board to issue a “stop, look and listen” communication pursuant to Rule 14d-9(f) or comply with Rule 14d-9 and Rule 14e-2 under the Exchange Act if the ETP Board determines in good faith (after consultation with outside legal counsel) that the failure to take such action would be reasonably likely to constitute a violation of applicable law.

For purposes of the merger agreement, a superior proposal means a bona fide unsolicited written offer, obtained after the date of the merger agreement and not in breach of ETP’s no solicitation obligations described above (other than an immaterial breach), to acquire, directly or indirectly, 80% or more of the outstanding equity securities of ETP or 80% or more of the assets of ETP and its subsidiaries on a consolidated basis, made by a third party (other than ETE or any of its affiliates), which is on terms and conditions that the ETP Board determines in its good faith to be (i) reasonably capable of being consummated in accordance with its terms, taking into account legal, regulatory, financial, financing and timing aspects of the proposal, and (ii) if consummated, more favorable to ETP’s unitholders (in their capacity as unitholders) from a financial point of view than the transactions contemplated by the merger agreement, taking into account at the time of such determination any changes to the terms of the merger agreement that as of that time had been committed to by ETE in writing.

Change in ETP Board Recommendation

Notwithstanding the terms described above or any other term of the merger agreement to the contrary, subject to the conditions described below, the ETP Board and the ETP Conflicts Committee may, at any time prior to the adoption of the merger agreement by the ETP common unitholders and unaffiliated ETP common unitholders, effect an adverse recommendation change in response to either (i) an alternative proposal constituting a superior proposal or (ii) a changed circumstance that was not known to or reasonably foreseeable by the ETP Board prior to the date of the merger agreement, in each case if the ETP Board, upon the recommendation of the ETP Conflicts Committee and after consultation with its outside legal counsel and financial advisors, determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its duties under applicable law, as modified by the ETP partnership agreement, and the following conditions have been met:

 

   

if the ETP Board (upon the recommendation of the ETP Conflicts Committee) intends to effect such adverse recommendation change in response to an alternative proposal:

 

   

such alternative proposal is bona fide, in writing and has not been withdrawn or abandoned;

 

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the ETP Board (upon the recommendation of the ETP Conflicts Committee) has determined, after consultation with its outside legal counsel and financial advisors, that such alternative proposal constitutes a superior proposal after giving effect to the adjustments offered by ETE pursuant to the fifth bullet below;

 

   

ETP has provided prior written notice to ETE of the intention of the ETP Board to effect an adverse recommendation change, and such notice has specified the identity of the person making such alternative proposal, the material terms and conditions of such alternative proposal, and complete copies of any written proposal or offers (including proposed agreements) received by ETP in connection with such alternative proposal;

 

   

during the period that commences on the date of delivery of the above-described notice and ends on the date that is the fifth calendar day following the date of such delivery, ETP must have (1) negotiated with ETE in good faith (to the extent ETE seeks to negotiate) to make such adjustments to the terms and conditions of the merger agreement as would permit the ETP Board not to effect an adverse recommendation change and (2) kept ETE reasonably informed with respect to the status and changes in the material terms and conditions of such alternative proposal or other change in circumstances related thereto; provided, that any material revisions to such alternative proposal (including any change in the purchase price) will require delivery of a subsequent notice and a subsequent notice period, except that such subsequent notice period will expire upon the later of (x) the end of the initial notice period and (y) the date that is the third calendar day following the date of the delivery of such subsequent notice; and

 

   

the ETP Board must have considered all revisions to the terms of the merger agreement irrevocably offered in writing by ETE and, at the end of the notice period, must have determined in good faith that (i) such alternative proposal continues to constitute a superior proposal and (ii) failure to effect an adverse recommendation change would be inconsistent with its duties under applicable law, as modified by the ETP partnership agreement, in each case even if such revisions were to be given effect; or

 

   

if the ETP Board (upon the recommendation of the ETP Conflicts Committee) intends to effect such adverse recommendation change in response to a changed circumstance:

 

   

ETP has provided prior written notice to ETE of the intention of the ETP Board to effect an adverse recommendation change, and such notice has specified the details of such changed circumstance and the reasons for the adverse recommendation change;

 

   

during the period that commences on the date of delivery of the above-described notice and ends on the date that is the fifth calendar day following the date of such delivery, ETP must have (i) negotiated with ETE in good faith to make such adjustments to the terms and conditions of the merger agreement as would permit the ETP Board not to effect an adverse recommendation change and (ii) kept ETE reasonably informed of any change in circumstances related thereto; and

 

   

the ETP Board must have considered all revisions to the terms of the merger agreement irrevocably offered in writing by ETE and, at the end of the notice period, must have determined in good faith (upon the recommendation of the ETP Conflicts Committee) that the failure to effect an adverse recommendation change would be inconsistent with its duties under applicable law, as modified by the ETP partnership agreement, even if such revisions were to be given effect.

As used in the merger agreement, a changed circumstance means a material event, circumstance, effect, condition, change or development, in each case that arises or occurs after the date of the merger agreement and was not, prior to the date of the merger agreement, known to or reasonably foreseeable by the ETP Board and did not result from or arise out of the announcement or pendency of, or any actions required to be taken by (or to be refrained from being taken by) ETP pursuant to the merger agreement; provided, however, that in no event shall the following events, circumstances, or changes in circumstances constitute a changed circumstance: (i) any

 

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change in the price or change in trading volume, of the ETP common units or the fact that ETP meets or exceeds internal or published projections, budgets, forecasts or estimates of revenues, earnings or other financial results for any period (provided, however, that the exception to this clause (i) shall not apply to the underlying causes giving rise to or contributing to such change or prevent any of such underlying causes from being taken into account in determining whether a changed circumstance has occurred) or (ii) any matters generally affecting the industry in which ETP operates as a whole that have not had or would not reasonably be expected to have a disproportionate effect on ETP and/or its subsidiaries.

Merger Consideration

The merger agreement provides that, at the effective time, each ETP common unit issued and outstanding as of immediately prior to the effective time (other than ETP common units held by ETE or its subsidiaries) will be converted into the right to receive 1.28 ETE common units.

ETE will not issue any fractional units in the merger. Instead, all fractional ETE common units that a holder of ETP common units would otherwise be entitled to receive as consideration for the merger will be aggregated and then, if a fractional ETE common unit results from that aggregation, be rounded up to the nearest whole ETE common unit.

Treatment of Restricted Units, Restricted Phantom Units and ETP Equity Plans

Under the merger agreement, each unvested award of ETP restricted units or ETP restricted phantom units outstanding immediately prior to the effective time will, as of the effective time, by virtue of the merger and without any action on the part of the holder thereof, cease to relate to or represent a right to receive ETP common units and will be converted into a right to receive a comparable restricted equity award with respect to ETE common units, on the same terms and conditions as were applicable to the corresponding award of ETP (including the right to receive distribution equivalents with respect to such award), except that the number of ETE common units covered by each such comparable award will be equal to the number of ETP common units subject to the corresponding award of ETP multiplied by the exchange ratio, rounded up to the nearest whole unit.

At the effective time, ETE will assume the obligations of ETP under the ETP equity plans and will assume such plans for purposes of employing such plans to make grants of equity-based awards with respect to ETE common units following the closing of the merger.

Treatment of General Partner Interest

Immediately prior to the effective time, ETP Managing GP will cause the conversion of the approximate 1.0% economic general partner interest in ETP to a non-economic general partner interest in ETP and cause ETP to issue 18,448,341 ETP common units to ETP GP. At the effective time, the non-economic general partner interest in ETP and the ETP common units issued to ETP GP in connection with the conversion of the general partner interest will be unchanged and remain outstanding.

Treatment of Other Classes of ETP Units

The merger agreement provides that (i) at the effective time, each Class E Unit, Class G Unit, Class K Unit, Series A Preferred Unit, Series B Preferred Unit, Series C Preferred Unit and Series D Preferred Unit of ETP issued and outstanding immediately prior to the effective time will be unchanged and remain outstanding, (ii) immediately prior to the effective time as part of the pre-closing transactions, each Class I Unit and Class J Unit issued and outstanding at such time will be cancelled for no consideration, and (iii) immediately prior to the effective time as part of the pre-closing transactions, all of the incentive distribution rights in ETP issued and outstanding at such time will be converted into 1,168,205,710 ETP common units. The Series C Preferred Units and the Series D Preferred Units will continue to be listed on the NYSE following the completion of the merger.

 

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Treatment of ETP Common Units Owned by ETE and its Subsidiaries

The ETP common units owned by ETE and its subsidiaries and issued and outstanding immediately prior to the effective time (including the ETP common units issued to ETE or any of its subsidiaries in connection with the pre-closing transactions) will be unchanged and remain outstanding.

Adjustments to Prevent Dilution

Prior to the effective time, the exchange ratio will be appropriately adjusted to reflect fully the effect of any unit dividend, subdivision, reclassification, recapitalization, split, split-up, unit distribution, combination, exchange of units or similar transaction and to provide the holders of ETP common units the same economic effect as contemplated by the merger agreement prior to such event.

Withholding

ETE and the exchange agent will be entitled to deduct and withhold from the merger consideration otherwise payable to any person pursuant to the merger agreement such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of applicable U.S. federal, state, local or non-U.S. tax law. To the extent that deduction and withholding is required, such deduction and withholding may be taken in ETE common units. To the extent withheld, such withheld ETE common units will be treated as having been sold on behalf of the person in respect of whom such withholding was made.

Distributions

No distributions with respect to ETE common units issued in the merger will be paid to the holder of any unsurrendered certificates or book-entry units until such certificates or book-entry units are surrendered. Following such surrender, there will be paid, without interest, to the record holder of ETE common units issued in exchange therefor (i) at the time of such surrender, all distributions payable in respect of any such ETE common units with a record date after the effective time and a payment date on or prior to the date of such surrender and not previously paid and (ii) at the appropriate payment date, the distributions payable with respect to such ETE common units with a record date after the effective time but with a payment date subsequent to such surrender. For purposes of distributions in respect of ETE common units, all ETE common units to be issued pursuant to the merger will be entitled to distributions as if issued and outstanding as of the effective time.

Regulatory Matters

See “The Merger—Regulatory Approvals and Clearances Required for the Merger” for a description of the material regulatory requirements for the completion of the merger.

ETE and ETP have agreed to (including to cause their respective subsidiaries to) use their reasonable best efforts to resolve any objections that a governmental authority or any other person may assert under antitrust laws with respect to the merger, and to avoid or eliminate each and every impediment under any antitrust law that may be asserted by any governmental authority with respect to the merger, in each case, so as to enable the closing of the merger to occur as promptly as practicable and in any event no later than the outside date. Notwithstanding the foregoing, ETE and ETP have agreed not to offer, negotiate or commit to any disposal, hold separate, or other restriction related to its or its subsidiaries’ businesses, operations or assets without the other party’s prior written consent.

Termination of the Merger Agreement

ETE or ETP may terminate the merger agreement at any time prior to the effective time, whether before or after the ETP common unitholders and unaffiliated ETP common unitholders have approved the merger agreement, by mutual written consent.

 

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In addition, either ETE or ETP may terminate the merger agreement at any time prior to the effective time by written notice to the other party:

 

   

if the merger has not been consummated on or before the outside date; provided, that the right to terminate the merger agreement if the merger has not been consummated on or before the outside date will not be available to a party (i) if the inability to satisfy the conditions to closing was due to the failure of such party to perform any of its obligations under the merger agreement or (ii) if the other party has filed (and is then pursuing) an action seeking specific performance to enforce the obligations under the merger agreement;

 

   

if any governmental authority has issued a final and nonappealable law, injunction, judgment or ruling that enjoins or otherwise prohibits the consummation of the transactions contemplated by the merger agreement or makes the transactions contemplated by the merger agreement illegal; provided, however, that the right to terminate for this reason will not be available if the prohibition was due to the failure of the terminating party to perform any of its obligations under the merger agreement; or

 

   

if the ETP common unitholders and unaffiliated ETP common unitholders do not adopt the merger agreement at the special meeting of ETP common unitholders called for such purpose or any adjournment or postponement of such meeting.

In addition, ETE may terminate the merger agreement:

 

   

if an adverse recommendation change by the ETP Board shall have occurred;

 

   

if prior to the adoption of the merger agreement by ETP common unitholders and unaffiliated ETP common unitholders, ETP is in willful breach of its obligations to (i) duly call, give notice of and hold a special meeting of ETP common unitholders for the purpose of obtaining common unitholder approval of the merger agreement, use its reasonable best efforts to solicit proxies from the ETP common unitholders in favor of such adoption and, through the ETP Board, recommend the adoption of the merger agreement to ETP common unitholders or (ii) comply with the requirements applicable to the other party described under “—No Solicitation by ETP of Alternative Proposals”; provided, that the right to terminate the merger agreement for this reason will not be available to ETE if it is then in material breach of any of its representations, warranties, covenants or agreements under the merger agreement; or

 

   

if there is a breach by ETP of any of its representations, warranties, covenants or agreements in the merger agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice from ETE of such breach; provided that ETE will not have the right to terminate the merger agreement for this reason if ETE is then in material breach of any of its representations, warranties, covenants or agreements contained in the merger agreement.

In addition, ETP may terminate the merger agreement:

 

   

if there is a breach by ETE of any of its representations, warranties, covenants or agreements in the merger agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice from ETP of such breach; provided that ETP will not have the right to terminate the merger agreement for this reason if ETP is then in material breach of any of its representations, warranties, covenants or agreements contained in the merger agreement; or

 

   

prior to the adoption of the merger agreement by ETP common unitholders and unaffiliated ETP common unitholders, in order to enter into (concurrently with such termination) any agreement, understanding or arrangement providing for a superior proposal in accordance with ETP’s obligation to comply with the requirements described under “—No Solicitation by ETP of Alternative Proposals,” including payment of the termination fee.

 

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In some cases, termination of the merger agreement will require ETP to reimburse up to $30.0 million of ETE’s expenses and pay a termination fee to ETE (less any expenses of ETE and its affiliates previously reimbursed by ETP), as described below under “—Expenses” and “—Termination Fee.”  Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by ETE or its affiliates.

Termination Fee

The merger agreement provides that ETP is required to pay a termination fee to ETE of $750.0 million, less any expenses of ETE previously reimbursed by ETP, as described below under “—Expenses,” to ETE if the merger agreement is terminated: (i) by ETP or ETE because the ETP common unitholder approval and the unaffiliated ETP common unitholder approval was not obtained at the special meeting of ETP common unitholders called for such purpose in a case where an adverse recommendation change has occurred; (ii) by ETP prior to the receipt of the ETP common unitholder approval and the unaffiliated ETP common unitholder approval, in order to enter into (concurrently with such termination) any agreement, understanding or arrangement providing for a superior proposal; (iii) by ETE due to an adverse recommendation change having occurred; or (iv) by ETE prior to the receipt of the ETP common unitholder approval and the unaffiliated ETP common unitholder approval due to a willful breach by ETP of its obligations to (a) duly call, give notice of convene and hold a special meeting of its common unitholders for the purpose of obtaining ETP common unitholder approval and the unaffiliated ETP common unitholder approval of the merger agreement, use its reasonable best efforts to solicit proxies from ETP common unitholders in favor of such adoption and, through the ETP Board, recommend the adoption of the merger agreement to ETP common unitholders or (b) comply with the requirements described under “—No Solicitation by ETP of Alternative Proposals.”

Expenses

Generally, all fees and expenses incurred in connection with the transactions contemplated by the merger agreement will be the obligation of the party incurring such fees and expenses.

In addition, ETP is required to pay the expenses of ETE in the event that the merger agreement is terminated:

 

   

by ETE or ETP because the merger agreement was not adopted by ETP common unitholders and unaffiliated ETP common unitholders at a special meeting of ETP common unitholders called for such purpose (or if ETP terminates the merger agreement pursuant to another termination right at a time when the agreement was terminable for this reason); or

 

   

by ETE because ETP is in willful breach of its obligations to (i) duly call, give notice of and hold a special meeting of ETP’s common unitholders for the purpose of obtaining common unitholder approval of the merger agreement, use its reasonable best efforts to solicit proxies from unitholders in favor of such adoption and, through the ETP Board, recommend the adoption of the merger agreement to ETP’s common unitholders or (ii) comply with the requirements described under “—No Solicitation by ETP of Alternative Proposals.”

In such case, ETP promptly, but in no event later than three business days after receipt of an invoice therefor from ETE, will be required to pay ETE’s designee all of the reasonably documented out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financing sources, hedging counterparties, experts and consultants) incurred by ETE and its affiliates in connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by ETE or its affiliates.

Conduct of Business Pending the Consummation of the Merger

Under the merger agreement, each of ETE and ETP has undertaken certain covenants that place restrictions on it and its respective subsidiaries from the date of the merger agreement until the earlier of the termination of

 

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the merger agreement in accordance with its terms and the effective time, unless the other party gives its prior written consent (which, in certain instances, cannot be unreasonably withheld, conditioned or delayed). In general, each party has agreed to use commercially reasonable efforts to (i) conduct its business in the ordinary course of business consistent with past practice, (ii) preserve intact its business organization and the goodwill of those having business relationships with it and retain the services of its present officers and key employees, (iii) keep in full force and effect all material permits and insurance policies maintained by it, its subsidiaries and its joint ventures, other than changes to such policies made in the ordinary course of business and (iv) comply in all material respects with all applicable laws and the requirements of its material contracts.

Subject to certain exceptions set forth in the merger agreement and the disclosure schedules delivered by ETP to ETE in connection with the merger agreement, unless ETE consents in writing (which consent cannot be unreasonably withheld, conditioned or delayed), ETP will not, and will not permit any of its subsidiaries or joint ventures to, among other things, undertake the following actions:

 

   

sell, transfer, lease, farmout or otherwise dispose of any properties or assets that (i) do not generate cash on a recurring basis and have a fair market value in excess of $100.0 million in the aggregate (except (A) pursuant to certain contracts listed in the disclosure schedules, (B) dispositions of obsolete or worthless equipment that is replaced with comparable or better equipment, (C) transactions in the ordinary course of business consistent with past practice or (D) sales or transfers to ETP or its subsidiaries) and (ii) generate cash on a recurring basis (including securities of ETP’s subsidiaries);

 

   

make any capital expenditures (which includes, among others, any investments by contribution to capital) in excess of $400.0 million in the aggregate other than certain capital expenditures set forth on the disclosure schedules or as may be reasonably required to conduct emergency operations or repairs of any well, pipeline or other facility;

 

   

directly or indirectly acquire (i) any entity, division, business or equity interest of any third party or, (ii) except in the ordinary course of business consistent with past practice, any assets that, in the aggregate, have a purchase price in excess of $200.0 million;

 

   

make any loans or advances to any person other than (i) to its employees in the ordinary course of business consistent with past practice, (ii) loans and advances to ETP or its subsidiaries and (iii) trade credit granted in the ordinary course of business consistent with past practice;

 

   

(i) except for in connection with certain contracts relating to indebtedness or commodity derivative instruments entered into in compliance with ETP’s risk management policy and (other than in the case of non-competition agreements) as in the ordinary course of business consistent with past practice, enter into material contracts (other than those already contemplated as of the date of the merger agreement or as are approved as part of any previously announced project of an ETP joint venture) in which the annual revenues or payments are anticipated to be in excess of $400.0 million, or terminate or amend in any material respect any material ETP contract, or (ii) (A) waive any material rights under any material ETP contract, (B) enter into or extend the term or scope of any material ETP contract that materially restricts ETP or any of its subsidiaries from engaging in any line of business or in any geographic area, (C) enter into any material ETP contract that would be breached by, or require the consent of any third party in order to continue in full force following, consummation of the transactions contemplated by the merger agreement or (D) release any person from, or modify or waive any provision of, any standstill or confidentiality agreement related to a sale of ETP or any of its material subsidiaries;

 

   

adopt a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization (other than transactions between wholly owned subsidiaries of ETP);

 

   

except as provided under any agreement entered into prior to the date of the merger agreement, pay, discharge, settle or satisfy any suit, action, claims or proceeding, in excess of $20.0 million individually or $40.0 million in the aggregate; or

 

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take any action that would in any material respect impede or delay the ability of the parties to satisfy any of the conditions to the transactions contemplated by the merger agreement, in each case to a date after the outside date.

ETP has further agreed that, subject to certain exceptions in the merger agreement and the disclosure schedules delivered by ETP to ETE in connection with the merger agreement ETP will not, and will not permit any of its subsidiaries or joint ventures to, among other things, undertake the following actions without the consent of ETE (which consent may be withheld in ETE’s sole discretion):

 

   

issue, sell, grant, dispose of, accelerate the vesting of or modify, any ownership or other limited partner interests in ETP, voting securities or equity interests, or any securities convertible into or exchangeable for ownership or other interests in ETP, voting securities or equity interests, other than (i) in connection with the vesting or settlement of any equity or equity-based award that is outstanding on, or granted after, the date of the merger agreement in accordance with the terms of such award, (ii) in connection with the granting of any awards of ETP restricted units and/or ETP restricted phantom units under the ETP equity plans in the ordinary course of business or consistent with past practice and (iii) in connection with the over-allotment option under the underwriting agreement, dated July 16, 2018, by and between ETP and the underwriters party thereto;

 

   

redeem, purchase or otherwise acquire any of ETP’s partnership interests, voting securities or equity interests, other than tax withholding with respect to any equity or equity-based award that is outstanding on, or granted after, the date of the merger agreement and in accordance with the terms of such awards;

 

   

declare, set aside for payment or pay any distribution on any ETP common units or other partnership interests, or otherwise make any payments to ETP unitholders in their capacity as such, other than (i) distributions by a subsidiary of ETP to its parent or (ii) distributions in accordance with the ETP partnership agreement in amounts not exceeding those set forth in the ETP disclosure schedule;

 

   

split, combine, subdivide or reclassify any ETP common units or other partnership interests in ETP;

 

   

incur, refinance or assume any indebtedness for borrowed money or guarantee any such indebtedness for borrowed money or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of ETP or any of its subsidiaries or joint ventures, except that ETP may:

 

   

borrow under ETP’s existing credit facility (and to the extent such credit facility is increased);

 

   

in addition to borrowings under the preceding bullet, borrow additional amounts up to $200.0 million; and

 

   

borrow from or repay a subsidiary, and ETP’s subsidiaries may borrow from or repay ETP;

 

   

prepay or repurchase any long-term indebtedness for borrowed money or debt securities of ETP or any of its subsidiaries, other than revolving indebtedness, borrowings from ETP to a subsidiary and repayments or repurchases required pursuant to the terms of such indebtedness or debt securities;

 

   

except in the ordinary course of business or as required by applicable law, (i) change its fiscal year or any method of tax accounting, (ii) make, change or revoke any material tax election, (iii) settle or compromise any material liability for taxes or (iv) file any material amended tax return;

 

   

make any changes in financial accounting methods, principles or practices (or change an annual accounting period), except insofar as may be required by a change in GAAP or applicable law;

 

   

amend ETP’s certificate of limited partnership or the ETP partnership agreement; or

 

   

engage in any activity or conduct its business in a manner that would cause less than 90% of the gross income of ETP for any calendar quarter since its formation and prior to the effective time to be treated as “qualifying income” within the meaning of Section 7704(d) of the Code.

Subject to certain exceptions set forth in the merger agreement and the disclosure schedules delivered by ETE to ETP in connection with the merger agreement, unless ETP consents in writing (which consent cannot be

 

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unreasonably withheld, conditioned or delayed), ETE has agreed to certain restrictions limiting the ability of it and its subsidiaries to, among other things:

 

   

make any capital expenditures (which includes, among others, any investments by contribution to capital) in excess of $150.0 million in the aggregate other than certain capital expenditures set forth on the disclosure schedules or as may be reasonably required to conduct emergency operations or repairs of any well, pipeline or other facility;

 

   

(i) except for in connection with certain contracts relating to indebtedness or commodity derivative instruments entered into in compliance with ETE’s risk management policy and (other than in the case of non-competition agreements) as in the ordinary course of business consistent with past practice, enter into material contracts or terminate or amend in any material respect any material ETE contract or (ii) (A) waive any material rights under any material ETE contract, (B) enter into or extend the term or scope of any material ETE contract that materially restricts ETE or any of its subsidiaries from engaging in any line of business or in any geographic area, (C) enter into any material ETE contract that would be breached by, or require the consent of any third party in order to continue in full force following, consummation of the transactions contemplated by the merger agreement or (D) release any person from, or modify or waive any provision of, any standstill or confidentiality agreement related to a sale of ETE or any of its material subsidiaries;

 

   

amend ETE’s certificate of limited partnership or the ETE partnership agreement (other than the ETE LPA amendment and amendments (i) in connection with any ETE acquisition transaction or (ii) that are approved by ETE GP or a ETE unit majority); or

 

   

adopt a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization (other than transactions exclusively between wholly owned subsidiaries of ETE).

ETE has further agreed that, subject to certain exceptions in the merger agreement and the disclosure schedules delivered by ETE to ETP in connection with the merger agreement ETE will not, and will not permit any of its subsidiaries or joint ventures to, among other things, undertake the following actions without the consent of ETP (which consent may be withheld in ETP’s sole discretion):

 

   

issue, sell, grant, dispose of, accelerate the vesting of or modify any limited partner interests in ETE, voting securities or equity interests, or any securities convertible into or exchangeable for limited partner interests in ETE, other than (i) in connection with the vesting or settlement of any equity or equity-based award that is outstanding on the date of the merger agreement or thereafter granted in accordance with their terms, (ii) issuances of up to $200.0 million in connection with a transaction involving the acquisition of assets or equity interests and (iii) issuances exceeding $200.0 million in connection with a transaction involving the acquisition of assets or equity interests (1) as to which the ETE Board has received an opinion from a nationally recognized investment banking firm to the effect that the consideration provided for in such transaction is fair, from a financial point of view, to ETE or the ETE unitholders, as the case may be, and (2) that could not reasonably be expected to cause any of the conditions to closing set forth in the merger agreement to be satisfied (any transaction described in clauses (ii) or (iii), a “ETE acquisition transaction”);

 

   

redeem, purchase or otherwise acquire any of ETE’s outstanding partnership interests, voting securities or equity interests, other than tax withholding with respect to, equity or equity-based awards outstanding on the date of the merger agreement or thereafter granted in accordance with their terms;

 

   

declare, set aside for payment or pay any distribution on any ETE common units, or otherwise make any payments to ETE’s unitholders in their capacity as such other than (i) distributions by a direct or indirect subsidiary of ETE to its parent, (ii) distributions in accordance with the ETE partnership agreement in amounts not exceeding those set forth on the ETE disclosure schedules or (iii) distributions in connection with an ETE acquisition transaction;

 

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split, combine, subdivide or reclassify any ETE partnership units or other interests;

 

   

incur, refinance or assume any indebtedness for borrowed money or guarantee any such indebtedness for borrowed money or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of ETE or any of its subsidiaries or joint ventures, except that ETE may:

 

   

borrow under ETE’s existing credit facility (and to the extent such credit facility is increased);

 

   

in addition to borrowings under the preceding bullet, borrow additional amounts up to $200.0 million; and

 

   

borrow from or repay a subsidiary, and ETE’s subsidiaries may borrow from or repay ETE;

 

   

prepay or repurchase any long-term indebtedness for borrowed money or debt securities of ETE or any of its subsidiaries, other than revolving indebtedness, borrowings from ETE to a subsidiary and repayments or repurchases required pursuant to the terms of such indebtedness or debt securities;

 

   

except in the ordinary course of business or as required by applicable law, (i) change its fiscal year or any method of tax accounting, (ii) make, change or revoke any material tax election, (iii) settle or compromise any material liability for taxes or (iv) file any material amended tax return;

 

   

except as provided under any agreement entered into prior to the date of the merger agreement, pay, discharge, settle or satisfy any suit, action, claims or proceeding, in excess of $20.0 million or $40.0 million in the aggregate;

 

   

make, or permit any of its subsidiaries to make, any acquisition of any other person or business that would (i) reasonably be expected to prevent, materially impede or materially delay the consummation of the merger or (ii) cause or be reasonably expected to cause the failure of the closing condition regarding ETP’s receipt of a tax opinion of its counsel, Vinson & Elkins L.L.P., regarding certain federal income tax matters;

 

   

engage in any activity or conduct its business in a manner that would cause less than 90% of the gross income of ETE for any calendar quarter since its formation and prior to the effective time to be treated as “qualifying income” within the meaning of Section 7704(d) of the Code; or

 

   

sell, lease, transfer or otherwise dispose of, or pledge or encumber any pre-closing contributed interests, except for liens under the existing ETE indebtedness.

In addition to the foregoing, ETE has agreed not to (to the extent within its authority under the ETE certificate of limited partnership and ETE partnership agreement or the comparable organizational documents of each of its material subsidiaries) cause USAC or Sunoco to take any action or fail to take any action that could reasonably be expected to in any material respect impede or delay the closing of the transactions contemplated by the merger agreement.

Indemnification; Directors’ and Officers’ Insurance

The merger agreement provides that, from and after the effective time, ETE will, to the fullest extent permitted by law, indemnify and hold harmless, and provide advancement and reimbursement of expenses to, all past and present directors and officers of ETP, ETP Managing GP, ETE, ETE GP or any of their respective subsidiaries, to the fullest extent that ETP, ETP Managing GP, ETP GP or any of their respective subsidiaries would be permitted to indemnify such indemnified persons.

In addition, from and after the effective time and as provided by the merger agreement, ETE will honor the provisions regarding the elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses contained in the governing instruments of ETP, ETP Managing GP or ETP GP and any subsidiary of the surviving entity, ETP Managing GP or ETP GP immediately prior to the effective time and ensure that the organizational documents of ETP, ETP Managing GP and ETE GP will, for a period of six years

 

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following the effective time, contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation than are presently set forth in such governing instruments. ETP will maintain in effect for six years from the effective time the current directors’ and officers’ liability insurance policies covering acts or omissions occurring at or prior to the effective time with respect to such indemnified persons, so long as ETP is not required to expend more than an amount per year equal to 300% of current annual premiums paid by ETP or ETP Managing GP for such insurance. ETP or ETP Managing GP may, in its sole discretion prior to the effective time, purchase a “tail policy” with respect to acts or omissions occurring or alleged to have occurred prior to the effective time that were committed or alleged to have been committed by such indemnified persons in their capacity as such, so long as the cost of such policy does not exceed six times an amount equal to 300% of the current annual premiums paid by ETP or ETP Managing GP for directors’ and officers’ liability insurance policies and, if such a “tail policy” is purchased, ETE will have no further obligations with respect to maintaining directors’ and officers’ liability insurance.

Financing Matters

The merger agreement provides that ETP consents to ETE’s use of and reliance on any audited or unaudited financial statements relating to ETP and its consolidated subsidiaries, any ETP joint ventures or entities or businesses acquired by ETP reasonably requested by ETE to be used in any financing or other activities of ETE, including any filings that ETE desires to make with the SEC. In addition, ETP will use commercially reasonable efforts, at ETE’s sole cost and expense, to obtain the consents of any auditor to the inclusion of the financial statements referenced above in appropriate filings with the SEC. Prior to the closing, ETP will provide such assistance (and will cause its subsidiaries and its and their respective personnel and advisors to provide such assistance), as ETE may reasonably request in order to assist ETE in connection with financing activities, including any public offerings to be registered under the Securities Act or private offerings. Such assistance will include, but not be limited to, the following: (i) providing such information, and making available such personnel as ETE may reasonably request; (ii) participation in, and assistance with, any marketing activities related to such financing; (iii) participation by senior management of ETP in, and their assistance with, the preparation of rating agency presentations and meetings with rating agencies; (iv) taking such actions as are reasonably requested by ETE or its financing sources to facilitate the satisfaction of all conditions precedent to obtaining such financing; and (v) taking such actions as may be required to permit any cash and marketable securities of ETP or ETE to be made available to finance the transactions contemplated by the merger agreement at the effective time.

ETE LPA Amendment

Concurrently with the closing, ETE GP will enter into an amendment to the ETE partnership agreement to, among other things, establish the ETE Class A Units.

Pursuant to the ETE partnership agreement, ETE GP has a preemptive right to acquire, in connection with any issuance of common units by ETE (including the issuance of ETE common units pursuant to the merger), additional ETE common units in order to allow ETE GP to maintain the percentage interest of ETE GP and its affiliates of ETE’s outstanding common units prior to any such issuance. As of August 1, 2018, ETE GP and its affiliates owned approximately 31% of ETE’s outstanding common units. Absent the exercise of this preemptive right, the percentage ownership of ETE GP and its affiliates would be diluted to approximately 13.5% as a result of the issuance of the merger consideration to the former ETP common unitholders in connection with the closing of the merger. ETE GP has agreed to waive its preemptive right in connection with the issuance of ETE common units pursuant to the merger, and ETE has agreed to issue to ETE GP ETE Class A Units. The number of ETE Class A Units to be issued to ETE GP will allow ETE GP and its affiliates to retain their current voting interest in ETE following the completion of the merger. The ETE Class A Units will be entitled to vote together with the ETE common units, as a single class, on any matter for which the holders of ETE common units are entitled to vote, except as required by law. Additionally, without the approval of 66 2/3% of the ETE Class A Units, ETE may not take any action that disproportionately or materially adversely affects the rights, preferences or privileges of the ETE Class A Units or amend the terms thereof. Following the closing of the merger, for so long as Kelcy Warren is an officer or a director of ETE GP, upon the issuance by ETE of additional ETE common units or any securities that

 

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have voting rights that are pari passu with the ETE common units, ETE will issue to the holder of ETE Class A Units a number of additional ETE Class A Units such that the holder maintains a voting interest in ETE with respect to the ETE Class A Units that is identical to its voting interest in ETE with respect to the ETE Class A Units prior to such issuance. The ETE Class A Units will not be entitled to distributions or otherwise have economic attributes, except that the ETE Class A Units in the aggregate will be entitled to an aggregate $100 distribution prior and in preference to any distribution of assets to holders of other classes or series of securities of ETE upon any liquidation, dissolution or winding up of ETE. The ETE Class A Units are not convertible into, or exchangeable for, ETE common units. Without the prior approval of a conflicts committee of the ETE Board, the ETE Class A Units may not be transferred to any person or entity, other than to Kelcy Warren, Ray Davis or to any trust, family partnership or family limited liability company the sole beneficiaries, partners or members of which are Kelcy Warren, Ray Davis or their respective relatives.

Amendment and Waiver

At any time prior to the effective time, whether before or after adoption of the merger agreement by ETP common unitholders and unaffiliated ETP common unitholders, the parties may, by written agreement and by action taken or authorized by the ETP Board and the ETE Board and, to the extent required by the ETE GP certificate of limited partnership and partnership agreement, the Audit and Conflicts Committee of the ETE Board, amend the merger agreement; provided, however, that the ETP Board and the ETE Board may not take or authorize any such action unless it has first referred such action to the ETP Conflicts Committee and the ETE Conflicts Committee, as applicable, for its consideration, and permitted the ETP Conflicts Committee and the ETE Conflicts Committee, as applicable, not less than two business days to make a recommendation to the ETP Board and the ETE Board, as applicable, with respect thereto (for the avoidance of doubt, the ETP Board and the ETE Board will in no way be obligated to follow the recommendation of the ETP Conflicts Committee and the ETE Conflicts Committee, as applicable, and the ETP Board and the ETE Board, as applicable, will be permitted to take action following the expiration of such two business day period); provided, however, that in the event the ETP Board or ETE Board takes or authorizes an action that is counter to any recommendation by the ETP Conflicts Committee or the ETE Conflicts Committee, as applicable, then the ETP Conflicts Committee or the ETE Conflicts Committee, as applicable, may rescind its approval of the merger agreement, with such rescission resulting in the rescission of “special approval” under Section 7.9 of the ETP partnership agreement or the ETE partnership agreement, as applicable. Following approval of the merger and the other transactions contemplated by the merger agreement by ETP common unitholders and unaffiliated ETP common unitholders, no amendment or change to the provisions of the merger agreement will be made which by law would require further approval by ETP common unitholders and unaffiliated ETP common unitholders, without such approval.

Unless otherwise expressly set forth in the merger agreement, whenever a determination, decision, approval or consent of ETP or the ETP Board or of ETE or the ETE Board is required pursuant to the merger agreement, such determination, decision, approval or consent must be authorized by the ETP Board and the ETE Board, as applicable; provided, however, that the ETP Board and the ETE Board, as applicable, may not take or authorize any such action unless it has first referred such action to the ETP Conflicts Committee and the ETE Conflicts Committee, as applicable, for its consideration, and permitted the ETP Conflicts Committee and the ETE Conflicts Committee, as applicable, not less than two business days to make a recommendation to the ETP Board and the ETE Board, as applicable, with respect thereto (for the avoidance of doubt, the ETP Board and the ETE Board, as applicable, will in no way be obligated to follow the recommendation of the ETP Conflicts Committee or the ETE Conflicts Committee, as applicable, and the ETP Board and the ETE Board, as applicable, will be permitted to take action following the expiration of such two business day period).

At any time prior to the effective time, any party to the merger agreement may, to the extent legally allowed: (i) waive any inaccuracies in the representations and warranties of any other party contained in the merger agreement; (ii) extend the time for the performance of any of the obligations or acts of any other party provided for in the merger agreement; or (iii) waive compliance by any other party with any of the agreements or conditions contained in the merger agreement, as permitted under the merger agreement; provided, however, that

 

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in the event the ETP Board or the ETE Board takes or authorizes any action under this provision or otherwise grants any consent under the merger agreement without the concurrence of the ETP Conflicts Committee or the ETE Conflicts Committee, as applicable, then the ETP Conflicts Committee or the ETE Conflicts Committee, as applicable, may rescind its approval of the merger agreement, with such rescission resulting in the rescission of “special approval” under Section 7.9 of the ETP partnership agreement or Section 7.9 of the ETE partnership agreement, as applicable.

Remedies; Specific Performance

The merger agreement provides that, in the event ETP pays the termination fee (described under “—Termination Fee”) to ETE when required, ETP will have no further liability to ETE. Notwithstanding any termination of the merger agreement, the merger agreement provides that nothing in the agreement (other than payment of the termination fee) will relieve any party from any liability for any failure to consummate the transactions when required pursuant to the merger agreement or any party from liability for fraud or a willful breach of any covenant or agreement contained in the merger agreement.

The merger agreement also provides that the parties are entitled to obtain an injunction to prevent breaches of the merger agreement and to specifically enforce the merger agreement. Each of the parties agrees that it may not oppose the granting of an injunction, specific performance and other equitable relief as provided in the merger agreement on the basis that either party has an adequate remedy at law or an award of specific performance is not an appropriate remedy for any reason at law or equity. Each party further agrees that no party is required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in the merger agreement and each party irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument. In the event that ETE receives the termination fee, ETE may not seek any award of specific performance under the merger agreement.

Representations and Warranties

The merger agreement contains representations and warranties made by ETP and ETE. These representations and warranties have been made solely for the benefit of the other parties to the merger agreement and:

 

   

may be intended not as statements of fact or of the condition of the parties to the merger agreement or their respective subsidiaries, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

   

have been qualified by disclosures that were made to the other party in connection with the negotiation of the merger agreement, which disclosures may not be reflected in the merger agreement;

 

   

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

   

were made only as of the date of the merger agreement or such other date or dates as may be specified in the merger agreement and are subject to more recent developments.

The representations and warranties made by both ETP and ETE relate to, among other things:

 

   

organization, formation, standing, power and similar matters;

 

   

capital structure;

 

   

approval and authorization of the merger agreement and the transactions contemplated by the merger agreement and any conflicts created by such transactions;

 

   

required consents and approvals of governmental authorities in connection with the transactions contemplated by the merger agreement;

 

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documents filed with the SEC, financial statements included in those documents and regulatory reports filed with governmental authorities;

 

   

absence of certain changes or events from December 31, 2017 through the date of the merger agreement and from the date of the merger agreement through the closing date;

 

   

legal proceedings;

 

   

compliance with applicable laws and permits;

 

   

information supplied in connection with this proxy statement/prospectus;

 

   

tax matters;

 

   

environmental matters;

 

   

contracts of each party;

 

   

property;

 

   

brokers and other advisors;

 

   

state takeover statutes;

 

   

regulatory matters; and

 

   

absence of additional representations and warranties.

Additional representations and warranties made only by ETP relate to, among other things:

 

   

employee benefits;

 

   

insurance; and

 

   

opinion of financial advisor.

Distributions

The merger agreement provides that, from the date of the merger agreement until the effective time, each of ETE and ETP will coordinate with the other regarding the declaration of any distributions in respect of ETE common units and ETP common units. The merger agreement also provides that holders of ETP common units will receive, for any quarter, either: (i) only distributions in respect of ETP common units or (ii) only distributions in respect of ETE common units that they receive in the merger.

ETE’s Obligation to Vote ETP Units

Under the terms of the merger agreement, ETE has agreed to vote all ETP common units then owned beneficially or of record by it or any of its subsidiaries, as of the record date, in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof. ETE consents to, and has caused or will cause, to the extent necessary and to the extent permitted by the organizational documents thereof, each of its subsidiaries to consent to, the merger agreement, the transactions contemplated by the merger agreement and any amendments of the ETP partnership agreement that are necessary or advisable in order to implement the pre-closing transactions. As of September 10, 2018, ETE and its subsidiaries collectively held 27,535,127 ETP common units, representing approximately 2.4% of the ETP common units entitled to vote on the merger.

Additional Agreements

The merger agreement also contains covenants relating to cooperation in the preparation of this proxy statement/prospectus and additional agreements relating to, among other things, access to information, notice of specified matters and public announcements. The merger agreement also obligates ETE to have ETE common units to be issued in connection with the merger approved for listing on the NYSE, subject to official notice of issuance, prior to the date of the consummation of the merger.

 

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ENERGY TRANSFER EQUITY, L.P.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

In August 2018, ETE and ETP announced that they have entered into a definitive agreement providing for the merger of ETP with and into a wholly owned subsidiary of ETE in a unit-for-unit exchange with ETP continuing as the surviving entity. In connection with the transaction, ETE’s incentive distribution rights in ETP will be converted into 1,168,205,710 ETP common units. Under the terms of the transaction, ETP common unitholders (other than ETE and its subsidiaries) will receive 1.28 ETE common units for each ETP common unit they own. The transaction is expected to close in the fourth quarter of 2018, subject to the approval by the holders of at least a majority of the outstanding ETP common units and at least a majority of the outstanding ETP common units held by unaffiliated ETP common unitholders and other customary closing conditions.

The following unaudited pro forma consolidated financial information of ETE reflects the pro forma impacts of the merger.

ETP is a consolidated subsidiary of ETE for financial accounting and reporting purposes. The merger will be accounted for as an equity transaction and will be reflected in the consolidated financial statements as ETE’s acquisition of the noncontrolling interest in ETP. The carrying amounts of ETE’s and ETP’s assets and liabilities will not be adjusted, nor will a gain or loss be recognized as a result of the merger.

The unaudited pro forma condensed consolidated balance sheet gives effect to the merger as if it had occurred on June 30, 2018; the unaudited pro forma condensed consolidated statements of operations assume that the merger was consummated on January 1, 2017. The unaudited pro forma condensed consolidated balance sheet and condensed consolidated statements of operations should be read in conjunction with (i) ETE’s Annual Report on Form 10-K for the year ended December 31, 2017, (ii) ETE’s Quarterly Report on Form 10-Q for the three months ended June 30, 2018, (iii) ETP’s Annual Report on Form 10-K for the year ended December 31, 2017; and (iv) ETP’s Quarterly Report on Form 10-Q for the three months ended June 30, 2018, which are all incorporated by reference into this proxy statement/prospectus.

The unaudited pro forma condensed consolidated financial statements are for illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the merger had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of the date of this proxy statement/prospectus.

 

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ENERGY TRANSFER EQUITY, L.P.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

June 30, 2018

(in millions)

 

     ETE Historical     Pro Forma
Adjustments
           Pro Forma for
Merger
 
ASSETS          

Current assets:

         

Cash and cash equivalents

   $ 519     $ (30     a      $ 489  

Accounts receivable, net

     4,309       —            4,309  

Accounts receivable from related companies

     106       —            106  

Inventories

     1,802       —            1,802  

Derivative assets

     63       —            63  

Income taxes receivable

     172       —            172  

Other current assets

     616       —            616  

Current assets held for sale

     6       —            6  
  

 

 

   

 

 

      

 

 

 

Total current assets

     7,593       (30        7,563  

Property, plant and equipment, net

     64,880       —            64,880  

Advances to and investments in unconsolidated affiliates

     2,687       —            2,687  

Other non-current assets, net

     996       —            996  

Intangible assets, net

     6,088       —            6,088  

Goodwill

     5,173       —            5,173  
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 87,417     $ (30      $ 87,387  
  

 

 

   

 

 

      

 

 

 
LIABILITIES AND EQUITY          

Current liabilities:

         

Accounts payable

   $ 3,955     $ —          $ 3,955  

Accounts payable to related companies

     102       —            102  

Derivative liabilities

     392       —            392  

Income taxes payable

     195       —            195  

Accrued and other current liabilities

     2,832       —            2,832  

Current maturities of long-term debt

     160   &nbs