Natural gas pipeline company Williams Companies Inc. (WMB Quick QuoteWMB - Free Report) announced that it will seek compensation from Texas-based pipeline firm Energy Transfer Equity LP as the latter has terminated the merger accord. In fact, Williams believes that Energy Transfer Equity has no right to breach the deal.

It is to be noted that following the termination of the merger deal by Energy Transfer, shareholders of Williams Companies might witness a loss in value of as high as $10 billion.

Last week, the Delaware Court of Chancery ruled in favor of Energy Transfer Equity. Notably, the ruling came in response to a lawsuit filed by Williams to hold Energy Transfer Equity to the deal. In May, Williams took the legal step when Energy Transfer Equity expressed concerns over the merger citing that the deal had not secured the necessary legal opinion to make it tax-free to shareholders.

However, much to the dismay of Williams, the Delaware Court of Chancery concluded that Energy Transfer Equity is contractually entitled to end the merger with Williams as the counsel of the former – Latham & Watkins LLP – was unable to deliver a required tax opinion prior to the merger deadline of  Jun 28, 2016.

Let us have a look at the prime reason why Energy Transfer Equity backed out from the accord.  Last September, Energy Transfer Equity had valued its acquisition agreement with Williams at $33 billion and had agreed to pay $6 billion in cash as part of the cash-and-stock acquisition. However, the deal became less attractive due to the sharp decline in oil prices that ensued. The cash payment of $6 billion made this pending merger a nightmare for Energy Transfer Equity given that borrowing this amount in a down market exposed it to the risk of being overleveraged.

Tulsa, OK-based Williams is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transportation of natural gas.  

WILLIAMS COS Price

WILLIAMS COS Price | WILLIAMS COS Quote

Energy Transfer Equity, through its subsidiaries, provides diversified energy-related services in the U.S. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end users and other marketing companies.

Both pipeline players currently carry a Zacks Rank #3 (Hold), which implies that the stocks will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the oil/gas production pipeline sector include Boardwalk Pipeline Partners LP and Rose Rock Midstream LP . Both stocks sport a Zacks Rank #1 (Strong Buy).

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