©Reuters

Williams Companies is facing a shareholder revolt after it emerged that the US oil and gas pipeline group had rejected a takeover approach from larger rival Enterprise Products Partners that would have created an $80bn company.

Corvex Management, which owns more than 4 per cent of Williams shares, wants the company’s senior management to engage with Enterprise Products, according to people familiar with the hedge fund.

Several other investors, who asked not to be named, told the Financial Times that Williams’ decision to rebuff the offer cast fresh doubt over the future of Alan Armstrong, the company’s chief executive.

Shareholders in favour of a deal argued that Enterprise Products, the US’s largest gas pipeline group, was “a perfect fit” for Williams, as the Tulsa-based company holds complementary natural gas assets.

“This is the dream combination,” said one investor, adding Enterprise Products had the kind of management that could help Williams flourish.

The US oil and gas pipeline sector, which traditionally has not been a hotbed of dealmaking, has been under sustained pressure following the collapse in energy prices since 2014.

Shares in Houston-based Enterprise Products have dropped about 28 per cent over that period. It had a market value of $58.4bn before details of the deal were made public on Thursday. A deal with Williams would allow Enterprise Products to cut costs and reshape its pipeline portfolio.

Investors’ anger emerged after the FT first reported on Thursday that Williams had rebuffed Enterprise Products’ offer.

Shares in Williams closed up 7.9 per cent on Thursday following the news, giving it a market value of $21.1bn. They slipped 1.5 per cent on Friday. Enterprise fell 2 per cent Thursday and a further 0.8 per cent on Friday.

News of the bid came after the planned $33bn sale of Williams to another rival, Energy Transfer Partners, collapsed in June following a bitter court battle. Since then, Williams has suffered a series of boardroom upheavals, with six of 13 directors resigning following a failed attempt to depose Mr Armstrong.

Among the directors that stepped down from the board were two activist investors — Keith Meister of Corvex Management and Eric Mandelblatt of Soroban Capital Partners — as well as Ralph Izzo, chief executive of New Jersey’s Public Service Enterprise Group.

In a letter to Williams on July 1, when the six board members resigned, Mr Meister wrote: “I have resigned because I can no longer in good conscience serve on a Board where a majority of that Board was unwilling to make a change that I felt was critical to the future direction of the Company — replacing Alan Armstrong as CEO.”

It is unclear whether Williams was approached by Enterprise Products before or after July 1. The structure of the offer made by Enterprise Products is also unknown at this stage. Both companies declined to comment.

Williams said on Monday that it plans to appoint three independent board members before its next annual shareholder meeting scheduled for November 23.

The previous deal for Williams collapsed after Latham & Watkins, the lawyers for Energy Transfer Partners said they were not in a position to provide an opinion on whether the transaction would be tax-free, which was a mandatory condition to the successful completion of the transaction.