On February 21, 2018, Kessler Topaz and their Delaware co-counsel concluded a three-day trial before Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery. Kessler Topaz represents both an individual investor and Chester County Employees’ Retirement Fund, on behalf of a class of Common Unitholders of Energy Transfer Equity, L.P., arising out of ETE’s creation of Series A Convertible Preferred Units.
As background, ETE is the general partner of several oil-and-gas pipeline limited partnerships, and it has common limited partnership units that trade on the NYSE. The lawsuit challenges ETE’s February 2016 determination to make a discriminatory distribution of the Convertible Preferred Units to members of ETE’s management and other insiders, including the partnership’s chairman Kelcy Warren, as well as to selected other limited partners, including friends and family members of ETE’s management.
The Convertible Preferred Units, issued when ETE was publicly considering a distribution cut in the event that its then-contemplated merger with The Williams Companies was consummated and the market price reflected investors’ uncertainty regarding the merger, insulate the recipients of those units from the effects of such a cut, guaranteeing them a minimum per-quarter cash distribution. The Convertible Preferred Units also accrue additional monetary value each quarter that, in May 2018, will be converted into additional ETE common units, at a price that was a discount to the already historically low market price for ETE common units in February 2016. The net effect operates as a massive transfer of wealth from the common unitholders to the selected few ETE insiders and others who received the Convertible Preferred Units, regardless of a distribution cut.
Ultimately, ETE was able to terminate the merger with Williams, and the common unit price has nearly tripled since then, further enhancing the Convertible Preferred Units’ value. Our lawsuit contends, generally, that the distribution of the Convertible Preferred Units to these selected insiders and others violated ETE’s limited partnership agreement—which governs the relationship among ETE, its management, and its investors holding common units—and we seek to invalidate them before conversion in May 2018. The trial seeks an injunction invalidating the Convertible Preferred Units before the May 2018 conversion.
Post-trial oral argument will be held before Vice Chancellor Glasscock in Georgetown, Delaware on April 16, 2018 at 2:00 p.m.