NEW YORK (The Deal) -- After resisting in mid-June, Williams (WMB) - Get Report said Monday that it agreed to be acquired by Energy Transfer Equity (ETE) for $37.7 billion.

On a conference call following the deal's announcement, Energy Transfer management said the combination will result in the largest natural gas gatherer in the U.S.

The deal comes at the same exchange ratio as initially offered of 1.8716 per share, but now Williams shareholders can receive either stock or cash or a combination up to $6.05 billion in cash, or 20% of the total consideration. The implied offer price is $43.50 per Williams share as of last Friday. 

Williams stockholders will also be entitled to a special one-time dividend of 10 cents per share right before the deal closes on top of the regular dividend. The stock will come in the form of shares of the newly formed Energy Transfer Corp., which will be publicly traded under the ticker symbol ETC, and taxed as a C-corp but tied to Energy Transfer Equity's economics. 

If Williams shareholders elect to receive all cash or all ETC shares, then each share would receive $8 in cash and 1.5274 ETC shares as a result of proration.

The original deal was for $64 per share, or $48 billion.

The transaction has to clear regulators and Williams' shareholders, but is expected to close in the first half of next year.

Energy Transfer Equity expects the combination to create synergies that will add $2 billion in earnings before interest, taxes, depreciation and amortization by 2020 and result in $400 million in additional cost savings.

Williams' $13.8 billion purchase of Williams Partners (WPZ) is now off, with Williams Partners remaining a publicly traded partnership with its headquarters in Tulsa and the same management team. Williams Partners' credit ratings aren't expected to be affected and the partnership will receive a $428 million break-up fee for the termination of the previous deal.

"This [deal] is about more than just size and scale," Energy Transfer Equity CFO Jamie Welch said on the conference call. "It's about dividend growth."

He said the cash portion of the deal would be paid for through a new financing agreement committed up front that is "cheaper than the cost of equity." He didn't give details.

Welch said that the deal will turn the idea of becoming bigger "on its head" and that the entities will remain "entrepreneurial," noting that the new company ETC could be an acquisition vehicle. 

When asked by an analyst, he said a lot of the $2 billion in synergies would come in natural gas liquids and in the northeast and Appalachia.

Welch is a former power and utilities investment banker at Credit Suisse.

Jefferies analyst Christopher Sighinolfi said that while many Williams shareholders will view the announcement positively given the uncertainty surrounding the industry and inclusion of cash for the deal, he thinks some may be disappointed as the implied value is identical to what was rejected just three months ago.

Indeed, Williams' shares fell 8.8% on the news to $37.99 per share. Energy Transfer Equity's units slipped 9.9%, to $20.96, while Williams Partners' units were down 11.4%, to $31.67.

Analysts at Tudor, Pickering & Holt Securities were nonplussed, saying, "We liked the deal as proposed three months ago and still do."

Energy Transfer Equity said the combination will create the third-largest energy franchise in North America and one of the five largest global energy companies. It will also benefit customers by enabling further investments in capital projects and efficiencies that wouldn't be achievable without the transaction.  

Energy Transfer Equity chairman Kelcy Warren said in a statement that the combination will create substantial value for both companies' stakeholders "that would not be realized otherwise."

Williams chairman Frank MacInnis said in a statement that after evaluating strategic alternatives, including extensive discussions with "numerous" parties, the board concluded that a merger with Energy Transfer Equity was in the best interests of Williams' stockholders and all of its other stakeholders.

"The merger provides Williams stockholders with compelling value today as well as the opportunity to benefit from enhanced growth projects," he said.

Williams CEO and president Alan Armstrong said in his statement that the combined companies will have enhanced prospects for growth, be better able to connect its customers to more diverse markets and have more stability in an environment of low commodity prices. 

Energy Transfer Equity said it plans to spend $5 billion on capital expenditures, a lot of it in the northeast and Appalachia.

An analyst on the call asked if Energy Transfer Equity would do more acquisitions.

"Let us take a breath first," Warren said. "We truly believe that when you're a service provider, you should provide all services required by the producer and the market. There are still some things we'd like to do, but there's wood chopping to do here."

Barclays; Lazard, Cravath, Swaine & Moore; and Gibson, Dunn & Crutcher are advising Williams, whose general counsel is Sarah Miller. Wachtell, Lipton, Rosen & Katz and Latham & Watkins are assisting Energy Transfer Equity, whose general counsel is Tom Mason.