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BUSINESS & TECH.
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THE WALL STREET JOURNAL.
© 2015 Dow Jones & Company. All Rights Reserved.
Tuesday, September 29, 2015 | B1
Pipeline Giants
Agree to Merge
For $32.6 Billion
Energy Transfer will
acquire Williams,
though for far less
than originally offered
ASSOCIATED PRESS
BY ALISON SIDER
A worker at an Alcoa plant skims a crucible of molten aluminum. The raw-metals business will still be called Alcoa after the company splits.
Alcoa Will Divide in Two
BY JOHN W. MILLER
Alcoa Inc. said Monday it
would split in two, a move
that would isolate the company’s more profitable partsmaking units from its raw aluminum operations.
The split is one of the
most dramatic corporate consequences of the commodities
bust driven by a slowdown in
Chinese economic growth. As
it consumes less, China has
found itself with a glut of
metals, especially aluminum
and steel, which it has been
shipping abroad, causing
trade frictions and depressing
markets.
Alcoa’s move also comes as
other large companies undertake breakups in the expectation that a narrower focus will
drive better results.
The raw metals business,
battered by falling aluminum
prices, will include the company’s bauxite-mining, alumina-refining and aluminumproduction businesses and
New Elements
Breakdown of 2015 revenue for the two new entities*
The new Alcoa, $13.2 billion
$9.5
Primary metals,
smelting and
casting
The new ‘value-added’ company, $14.5 billion
$3.7B
Alumina,
mining and
refining
$5.6B
$2.6
Aerospace
$1.6 $1.3
Packaging
$3.4
Other
Commercial Building and
transport construction
*For the year ended June 30.
THE WALL STREET JOURNAL.
Source: the company
will still be called Alcoa to
reflect the company’s 126year-old heritage as the
world’s first industrial producer of aluminum. The other
entity, which for now Alcoa is
calling its “value-add company,” will comprise its
global rolled products, engineered products and solutions, and transportation-andconstruction businesses.
The Alcoa entities “now
each have the strength and
scale to each stand on their
own,” Alcoa Chief Executive
Klaus Kleinfeld said in an in-
terview.
Alcoa said 40% of the
value-add unit’s revenue will
come from the aerospace industry, through its strength in
areas such as jet engine and
industrial gas turbine airfoils
and aerospace fasteners. The
new company is also expected
to benefit from a jump in automotive revenue amid growing demand for aluminum-intensive vehicles.
Under Mr. Kleinfeld, formerly chief executive at Siemens AG, Alcoa has closed unprofitable raw aluminum
smelters while expanding its
manufactured parts business,
including through deals. Last
year, it acquired U.K. jet-engine parts maker Firth Rixson
Ltd., and this year it bought
Pittsburgh-based RTI International Metals Inc., one of the
world’s biggest makers of fabricated titanium products for
the aerospace industry.
The decision to split follows
years of grumbling by large institutional shareholders dissatisfied with Alcoa’s tumbling
share price. Alcoa has lost
Please see ALCOA page B2
Energy Transfer Equity LP
agreed to acquire Williams
Cos. in a $32.6 billion deal that
will create a massive U.S. network of natural-gas pipelines.
In June, Williams had rejected a $48 billion offer from
Energy Transfer. But since
then shares of energy companies have been beaten down.
Natural-gas prices have remained low, the price of oil the
companies also transport has
tumbled and the outlook for
growth in the pipeline industry
has dimmed.
Both companies’ shares
have fallen sharply since Energy Transfer’s original allstock offer became public in
June, so even though Monday’s
offer is similar in exchange ratio, the total price tag is about
$15 billion lower.
Williams had hired advisers
to run an auction that drew
other bidders, according to
people familiar with the matter. But in the end, Dallasbased Energy Transfer prevailed with a bid that values
Williams shares at $43.50, a
4.6% premium to their closing
price Friday.
The exchange ratio in Monday’s deal is the same as the
original offer accounting for
Energy Transfer’s 2-for-1 stock
split in July. One difference:
Williams shareholders have the
option to receive part of the
payment in cash—up to $6.05
billion.
Williams shares closed 12%
lower at $36.57 on Monday,
while shares of Energy Transfer fell 13% to $20.29.
The firms will have a combined network of more than
100,000 miles of oil and gas
pipelines crisscrossing the continent. Williams offers Energy
Transfer more access to the
northeastern U.S., where connections are needed to bring
surging output from the Marcellus Shale in Pennsylvania to
New York and New England.
Tulsa, Okla.-based Williams’s 10,000-mile Transco
natural-gas network is regarded as the company’s crown
jewel and is a critical fuel link
between Texas and the Northeast.
The price of a barrel of oil
was hovering at about $60 a
barrel in June, but has since
fallen to about $45; natural-gas
prices have dropped to about
$15 billion
Valuation gap between Energy
Transfer’s new bid for Williams
and original offer made in June
$2.70 from over $3. Companies
that drill for oil and gas have
been cutting back, leading to
declines in production as well
as widespread layoffs at oilfield services companies.
While plunging oil and natural gas prices haven’t hit pipeline operators as hard as other
energy companies, analysts say
the part of the industry that
builds and operates pipelines,
natural-gas processing facilities and storage terminals is
facing pressure to merge.
Prices have also fallen for fuels
like ethane and propane, which
Please see ENERGY page B2
Valeant Shares Tumble as Democrats Probe Prices
Democrats on the House
oversight committee are trying to force Valeant Pharmaceuticals International Inc.
to provide documents explaining hefty price increases for
two heart drugs.
Valeant shares fell 16.5% to
$166.50 Monday following
news of the request for a subpoena. The stock had fallen
more than 12% over the previous several days amid increasing criticism from law
makers about drug-price increases.
Valeant refused early this
month to submit documents
sought by Rep. Elijah Cummings (D., Md.) and Sen. Bernie Sanders (I., Vt.) explaining
the 525% and 212% price increases the company took on
the two drugs the day it acquired their rights, saying the
requested information was
“highly proprietary and confidential.”
On Monday, Rep. Cummings, ranking member of the
House Committee on Oversight and Government Reform, and its 17 other Democratic members sent a letter
Yahoo Presses Ahead
With Alibaba Spinoff
BY DOUGLAS MACMILLAN
Yahoo Inc.’s bold plan to
spin off more than $20 billion
worth of shares in Alibaba
Holding Group Ltd. without
incurring a tax bill just got
riskier.
The Internet company said
in a filing Monday it will move
forward with a spinoff despite
not having the explicit blessing of tax regulators. The Internal Revenue Service earlier
this month denied Yahoo’s request for a favorable ruling of
the plan.
Yahoo said it aims to complete the spinoff of 384 million
Alibaba shares in the fourth
quarter. By forging ahead, Yahoo and its tax adviser are indicating they are confident
their plan passes legal muster
and should be tax free.
But they run the risk that
the IRS could challenge the
spinoff in a future audit, potentially putting shareholders
on the hook for billions of dol-
lars in taxes.
Any challenge by the IRS
could take years, however. In
February, Yahoo said that the
IRS at the end of last year had
completed its audit of Yahoo’s
2009 and 2010 tax returns.
A Yahoo spokeswoman declined to comment beyond the
filing.
Chief Executive Marissa
Mayer needs to complete the
Alibaba spinoff to quell investors, who are growing impatient
with her lack of progress turning
around the company’s struggling
online-ad business in more than
three years at the helm.
Yahoo’s stock gains under
Ms. Mayer are largely tied to
investors’ growing enthusiasm
for its Alibaba stake and the
CEO’s commitment to return
billions of dollars to shareholders through a spinoff.
Shares in both Yahoo and
Alibaba have slid about 45% this
year amid a broad selloff in
China stocks as investors grow
Please see YAHOO page B5
to the committee’s Republican
chairman asking him to issue
a
subpoena
compelling
Valeant to furnish the documents.
The Democrats also requested that the chairman,
Rep. Jason Chaffetz (R.,
Utah), ask Valeant CEO Michael Pearson to testify before the committee.
“We believe it is critical to
hold drug companies to account when they engage in ‘a
business strategy of buying
old neglected drugs and turning them into high-price ‘specialty drugs,’ ’ ” the Demo-
crats wrote in their letter,
citing an article in The Wall
Street Journal in April about
the industry practice, which
used Valeant’s drug-price increases as an example.
The Democrats wrote they
are also seeking the testimony
of Martin Shkreli, CEO of Turing Pharmaceuticals AG,
which raised the price of antiparasite drug Daraprim more
than 50-fold after buying the
U.S. rights in August. After an
onslaught of criticism, Mr.
Shkreli later said Turing will
cut the drug’s price from its
current $750 a tablet.
Valeant and Turing declined to comment on the
Democrats’ letter.
It is up to Mr. Chaffetz to
decide whether the committee
will issue a subpoena or hold
a hearing, but it is far from
certain he will. The Democrats wrote in their letter that
Mr. Chaffetz had declined to
sign the initial request to
Valeant seeking documents
and other information about
the price increases for the
two heart drugs, Nitropress
and Isuprel.
Mr. Chaffetz didn't respond
to a request for comment.
Earlier on Monday, Mr.
Pearson, in a letter to Valeant
employees, dismissed Wall
Street’s concerns regarding
the company’s growth prospects.
He said just 15% of Valeant
revenue comes from U.S. government reimbursements, and
that the company generally
relies on selling more drugs
to up its sales, not price increases.
“Valeant is well-positioned
for strong organic growth,
even assuming little to no
price increases,” Mr. Pearson
wrote.
VW Faces Barrage of U.S. Litigation
BY MIKE SPECTOR
Lawyers are moving to consolidate widespread litigation
stemming from Volkswagen
AG’s emissions-cheating scandal, setting up a legal fight expected to spur rafts of depositions and demands for billions
of dollars in damages.
Plaintiffs’ lawyers filed
more than two dozen lawsuits
in courts across the U.S. within
days of the Environmental Protection Agency’s Sept. 18 disclosure that Volkswagen admitted to cheating on
emissions tests for nearly a
half million diesel-powered
cars sold in the U.S. since
2008.
Volkswagen says as many as
11 million vehicles world-wide
employ what authorities call
defeat devices, or software
that can make cars appear
cleaner than they are during
regulatory tests and disable
emissions controls during normal driving conditions.
Now, lawyers across the U.S.
are jockeying to move class-ac-
PATRICK T. FALLON/BLOOMBERG NEWS
BY JONATHAN D. ROCKOFF
A Volkswagen Golf awaiting emissions testing at a laboratory in El Monte, Calif., last week.
tion lawsuits, expected to
number in the hundreds, before one federal judge for a
long-running case.
Such consolidated lawsuits
are called multidistrict litigation, or MDL, since they are
culled from legal actions
across different jurisdictions.
A Volkswagen spokeswoman
declined to comment. The company over the weekend issued a
fresh apology and launched a
website that asks consumers to
be patient while the company
figures out how to address the
affected vehicles.
The plaintiffs’ lawyers are accusing Volkswagen of defrauding consumers who are suffering
declining vehicle values.
They are also seeking recompense for consumers who
Please see VW page B4