NEW YORK (The Deal) -- In a surprise announcement, Tulsa, Okla., oil and gas pipeline operator Williams Companies(WMB) - Get Report said Sunday night it's exploring strategic alternatives, including a sale, after rejecting an unsolicited buyout offer for $64 per share, or $48 billion. Williams didn't name the suitor, but Dallas-based Energy Transfer Equity (ETE) said in a separate statement it made an offer for $53.1 billion, including debt.

The deal, which would come in the form of shares of a new Energy Transfer Equity C-corp with the same value, represents a 32.4% premium over Williams' closing price Friday of $68.39. The exchange would be 0.9358 of an ETE Corp. share for each Williams share and ETE Corp. would be publicly traded on the Big Board under the symbol ETC.

Williams said the proposal was contingent on canceling its $13.8 billion acquisition of Williams Partners (WPZ) . Williams announced that deal on May 13 for 1.115 of a Williams share for each Williams Partners unit.

Williams said it carefully considered the deal with outside financial and legal advisers and determined that it "significantly" undervalues it and wouldn't deliver value "commensurate" with what Williams expects to achieve on a standalone basis and through growth initiatives, including buying Williams Partners.

Williams said it will continue to work toward closing the Williams Partners transaction through the strategic review process, which could include a merger, sale of Williams or continuing to pursue its operating and growth plan. Williams is expecting a third-quarter close if the deal is approved by Williams shareholders.

"Our board and management team remain committed to acting in the best interests of shareholders, and in light of the unsolicited proposal, our board believes it is in the best interest of shareholders to conduct a thorough evaluation of strategic alternatives," Williams CEO and president Alan Armstrong said in a statement. "Williams' premier infrastructure connects the best natural gas supplies to the best market and our strategy has provided substantial shareholder value allowing us to deliver a compound annual dividend growth rate of approximately 30% since we embarked on our strategy in 2012."

Armstrong added management expects the growth of the business and the benefits from the Williams Partners transaction will help the company achieve 10% to 15% dividend growth through 2020. "We are confident in our strategic plan and the significant value that will be created through the acquisition of WPZ and our large portfolio of growth projects," he said. "At the same time, we are open minded and committed to ensuring that Williams is maximizing value for shareholders."

Energy Transfer Equity said the offer, which has been in the works for six months, was made on May 19 to Armstrong and on June 11 and 18 to the company's board after Williams' announcement that it was buying Williams Partners. It thinks its offer is more compelling and is "disappointed" that it had to publicly confirm its offer for Williams.

"Unfortunately, until Williams' announcement today, Williams' management has inexplicably ignored ETE's efforts to engage in a discussion with Williams regarding a transaction that presents a compelling value proposition for its stockholders," Energy Transfer Equity said. "After the WPZ merger announcement, ETE believed that it had no other choice but to provide the detailed terms of its interest to the Williams board. Now that Williams has finally responded, ETE intends to engage with Williams to the extent that Williams undertakes a fair and even-handed process."

Energy Transfer Equity chairman Kelcy Warren said in a statement that he generally hasn't been supportive of transactions that involve the partnership's units as he believes they are significantly undervalued, but he believes the combination with Williams will create substantial value that wouldn't otherwise be realized. "I am truly excited at the prospect of bringing together these two businesses under a common platform and creating additional value for every stakeholder," he said.

Energy Transfer Equity said it doesn't expect problems getting the deal through regulators and it doesn't require a vote by Energy Transfer Equity's unitholders, which will gives the transaction more certainty to close.

Williams said there can't be any assurance regarding the results of Williams' review of strategic alternatives and it won't make further announcements regarding the process until it makes a final decision.

Tudor, Pickering, Holt & Co. Securities wrote in a note that having rejected Energy Transfer Equity's offer, Williams must either convince the market of its ability to "stand on its own merit" or accept a reasonable takeout offer.

Christopher Sighinolfi, an analyst at Jefferies, wrote in a report that an acquisition of Williams, which he thinks has been undervalued compared with its peers, would mark the largest deal in the history of the acquisitive Energy Transfer Equity.

Bond research firm CreditSights analyst Andy DeVries doesn't see antitrust issues, noting that Williams is big in the Marcellus Shale and Energy Transfer Equity has been interested in expanding there. He also noted that activist hedge funds Corvex and Soroban own 9% of Williams and will likely vote for the deal given its premium.

There's little love lost between the two companies. Williams previously lost a bidding war to Energy Transfer Equity for Southern Union and Energy Transfer Equity was rumored to have bid $70 per share last year for Targa Resources Partners (NGLS) , which ended up buyingAtlas Resources Partners (ARP) , DeVries noted. Targa is now trading at around $41 per share.

Barclays' Gary Posternack and Barbara Byrne and Lazard's Albert Garner and Doug Fordyce are advising Williams. Cravath, Swaine & Moore's Richard Hall and Minh Van Ngo and Gibson, Dunn & Crutcher's Steven Talley, Eduardo Gallardo and Robyn Zolman are providing it with outside legal advice.

Wachtell, Lipton, Rosen & Katz's David Katz, Alison Preiss, Nelson Fitts and Eiko Stange and Latham & Wakins's Bill Finnegan and Ryan Maierson are advising Energy Transfer Equity, whose general counsel is Tom Mason.