A Williams spokesman didn't respond to requests for comment.
Six of 13 directors quit after they were unable to oust CEO Alan Armstrong because they didn't think he could steer Williams as a standalone company, according to various reports. They included activist investors Keith Meister of Corvex Management and Eric Mandelblatt of Soroban Capital Partners, who both joined the board in 2014 after a public campaign and had supported the merger with ETE while Armstrong was against it, The Wall Street Journal reported quoting unnamed sources.
Others resigning included chairman Frank MacInnis, who may have resigned for personal reasons; Laura Sugg, a former executive at ConocoPhillips (COP - Get Report) ; Ralph Izzo, CEO of utility giant Public Service Enterprise Group (PEG - Get Report) ; and Steven Nance, president of a privately held Steele Creek Energy, who had all supported the deal, according to the report.
After months of wooing Williams, ETE announced in September that it had agreed to buy Williams for $43.50 per share in cash and stock, or $38 billion, in what would have created the largest natural gas gatherer in the U.S. But industry conditions worsened after that and CEO Kelcy Warren said he was concerned about the debt the company would have to take on to fund the $6 billion cash portion of the deal.
Last week a Delaware judge ruled that ETE could terminate the transaction because it couldn't get a favorable opinion on the deal's tax treatment from its law firm Latham & Watkins LLP. On Wednesday ETE cancelled the deal and Williams said it was appealing the ruling and would take "appropriate actions" to enforce its rights under the agreement.
The board split dates at least as far back as the decision to sell Williams to ETE. According to a Securities and Exchange Commission filing, the Williams board initially voted 7-6 to reject ETE's offer, but directors Joseph Cleveland -- former chief information office at Lockheed Martin -- and Janice Stoney -- a former executive at U.S. West Communications -- changed their votes. The six directors who reportedly resigned yesterday were all in the minority on the 7-6 vote.
Stoney testified at her deposition in the case that one of the reasons she changed her mind was the possibility that Mandelblatt and Meister might launch a proxy fight if the Williams board rejected the deal in a 7-6 vote with MacInnis voting for the deal and Armstrong rejecting it.
Stoney didn't testify in last week's trial before Delaware Vice Chancellor Sam Glasscock III, but Rolin Bissell, a partner at Young Conaway Stargatt & Taylor LLP, played a tape of that piece of her deposition when he cross-examined MacInnis, who was the first witness called in the trial.
Such a board split on a decision to sell a company is very unusual, and given yesterday's events must have persisted in the Williams boardroom.
The split may have made it harder for the two companies to negotiate an exit to the deal and probably also affected trial strategy on both sides, although the central issue in the case -- the issuance of a favorable tax opinion on the deal by ETE's lawyers at Latham -- did not hinge on the contention within the Williams board. For example, Williams might have opted not to call Armstrong as a witness at trial because of his opposition to the transaction while ETE may not have wanted to alienate him further.
Moody's Investors Service changed its outlook on ETE and its affiliate Energy Transfer Partners (ETP) on Wednesday to negative from stable, citing a more challenging energy market that has resulted in higher debt leverage at both entities, ETP's weaker distribution coverage and the potential litigation fallout emanating from terminated bid to acquire Williams.
Analysts at Tudor, Pickering, Holt & Co. said Wednesday that ETE needs to address distribution coverage and leverage issues and Williams has some communication catch-up to do as a stand-alone complex, along with updates on growth capital forecasts, costs cutting efforts and its own distribution policies.
-- David Marcus contributed to this report