Going public
To get to the point Energy Transfer is at today — a large company that grew quickly — Warren and Davis had to do some reckoning back in 2002. Both realized quickly that the company would have to be willing to take on some debt to take advantage of the opportunities in front of them. Both were the company’s sole owners, and they decided that in the interest of growth, that could no longer be true. First, they brought in investors, and then they went public.
“We had to suffer some dilution to play in bigger leagues,” Warren says. “We brought in some financial partners, and that’s been very rewarding for them and for us. … I own between 17 and 18 percent of the company today, and at one time, I owned 50 percent.”
Energy Transfer went public in 2004. That has forced the company to refocus its energy on the financial principles that kept the company in good standing with organizations that create investment ratings, such as Standard & Poor’s.
“It’s important for us to have investment-grade credit ratings,” Warren says.
According to Warren, going public is “horrifying” because of the amount of regulation it introduces into the business. Sarbanes-Oxley, the 2002 legislation governing the conduct of publicly held companies, is a complicated piece of legislation that has made it much more difficult for companies to be publicly traded.
“That’s swinging a sledgehammer to kill a gnat,” Warren says. “But it is what it is, and at the same time, we must be in compliance. The cost to companies like us and the distractions to companies like us are amazing. The way I tend to handle it is I surround myself with good people and say, ‘Handle it.’ I end up delegating the things I don’t enjoy.”
Warren says that also leaves him free to do the work he needs to do within the company. He says he is fortunate to have people working around him who are loyal and whom he trusts, which is vital to any company’s survival.
“I realize where my strength lies, and I’ve taken the burden off of me, and it allows me to go do what I do well,” Warren says.
Besides providing a much-needed infusion of capital, becoming publicly traded is a great reward for employees, especially those who have been with the company a long time. When a company is privately held, stock can be given to employees, but it’s tough to sell. Public stock is much easier.
“Going public is wonderful for the people who have believed in the plan for so long because now they can call their stockbroker, and they can begin to see the benefits of all of their hard work,” Warren says.
Energy Transfer, though, isn’t the highest-paying company around, Warren says, and that’s on purpose.
“If anything, we underpay our people, but we greatly reward them with equity,” Warren says. “The way our plan works, we compare ourselves against our peer group, which is our competitors. If we perform at a high ranking against our peer group, then we issue new units to our employees. It’s been a good plan. It’s worked quite well.”
Ultimately, employees who are invested in the company financially tend to stay, Warren says.
“You vest over a period of time,” Warren says. “It’s very punitive financially if you walk away from that vesting. … I would expect that our turnover rate, for a company our size, is the lowest in our industry.”
Warren says that with its strong staff and available capital, Energy Transfer is in the perfect position to grow.
“I love our future,” Warren says. “(Our industry) has gone back to fundamentals. I am really, really excited. For this nation to address its energy needs, we need to lay a lot of pipeline in the future. We intend to be a major player in that arena.”
HOW TO REACH: Energy Transfer Partners LP, www.energytransfer.com