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As filed with the Securities and Exchange Commission on March 6, 2017

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ONEOK, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Oklahoma		4923		73-1520922
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

100 West Fifth Street

Tulsa, Oklahoma 74103

(918) 588-7000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Stephen W. Lake

Senior Vice President, General Counsel and Assistant Secretary

ONEOK, Inc.

100 West Fifth Street

Tulsa, Oklahoma 74103

(918) 588-7000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Frank E. Bayouth, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 1000 Louisiana, Suite 6800 Houston, Texas 77002 (713) 655-5100		Mike O’Leary, Esq. Jordan Hirsch, Esq. Andrews Kurth Kenyon LLP 600 Travis St., Suite 4200 Houston, Texas 77002 (713) 220-4200

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the proposed merger contemplated by the Agreement and Plan of Merger, dated January 31, 2017, described in the enclosed proxy statement/prospectus, have been satisfied or waived.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐  (Do not check if a smaller reporting company)		Smaller reporting company		☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered (1)		Proposed maximum offering price per share		Proposed maximum aggregate offering price (2)		Amount of registration fee (3)
Common Stock, par value $0.01 per share		168,920,998		N/A		$8,836,197,383.48		$1,024,115.28

(1)

The number of shares of common stock, par value $0.01 per share, of ONEOK, Inc. being registered is based upon an estimate of the maximum number of common units of ONEOK Partners, L.P. that will be outstanding immediately prior to the merger and exchanged for such registered securities of ONEOK, Inc. in connection with the merger of ONEOK Partners, L.P. with a wholly owned subsidiary of ONEOK, Inc. as described herein, multiplied by the exchange ratio of 0.985 of a share of common stock of ONEOK, Inc. for each such common unit of ONEOK Partners, L.P.

(2)

The proposed maximum aggregate offering price was calculated based upon the market value of the common units representing limited partner interests in ONEOK Partners, L.P., the securities to be converted into the right to receive the merger consideration in the merger, in accordance with Rules 457(c) and 457(f) under the Securities Act as follows: the product of (a) $51.525, the average of the high and low prices per unit of the ONEOK Partners common units as reported on the New York Stock Exchange on February 27, 2017, and (b) 171,493,399, the estimated maximum number of ONEOK Partners common units that may be exchanged for the merger consideration in the merger.

(3)	Calculated by multiplying the proposed maximum aggregate offering price by 0.0001159.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission (the “SEC”), acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this preliminary joint proxy statement/prospectus is not complete and may be changed. ONEOK, Inc. may not distribute or issue the securities being registered pursuant to this registration statement until the registration statement, as filed with the Securities and Exchange Commission (of which this preliminary joint proxy statement/prospectus is a part), is effective. This preliminary joint proxy statement/prospectus is not an offer to sell nor should it be considered a solicitation of an offer to buy the securities described herein in any state where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION DATED MARCH 6, 2017

 

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

On January 31, 2017, ONEOK, Inc., an Oklahoma corporation (“ONEOK”), New Holdings Subsidiary, LLC, a Delaware limited liability company (“Merger Sub”), ONEOK Partners, L.P., a Delaware limited partnership (“ONEOK Partners”), and ONEOK Partners GP, L.L.C., a Delaware limited liability company and the general partner of ONEOK Partners (the “ONEOK Partners GP”), entered into an Agreement and Plan of Merger (the “merger agreement”), pursuant to which ONEOK will acquire all of the outstanding common units representing limited partner interests in ONEOK Partners (“ONEOK Partners common units,” and such holders of ONEOK Partners common units, “ONEOK Partners common unitholders”) that ONEOK and its subsidiaries do not already own. Upon the terms and subject to the conditions set forth in the merger agreement, Merger Sub will be merged with and into ONEOK Partners (the “merger”), with ONEOK Partners surviving as a wholly owned subsidiary of ONEOK. The conflicts committee of the board of directors of ONEOK Partners GP (the “ONEOK Partners conflicts committee”) and the board of directors of ONEOK Partners GP (the “ONEOK Partners board”) each have determined that the merger is fair and reasonable to, and in the best interests of, ONEOK Partners and the ONEOK Partners common unitholders other than ONEOK, ONEOK Partners GP and their affiliates (the “ONEOK Partners unaffiliated unitholders”), and have unanimously approved the merger agreement and the merger.

If the merger is completed, each outstanding ONEOK Partners common unit not owned by ONEOK or its subsidiaries will be converted into the right to receive 0.985 (the “exchange ratio”) of a share of common stock, par value $0.01 per share, of ONEOK (the “ONEOK common stock,” and such consideration, the “merger consideration”). Based on the closing price of ONEOK common stock on January 31, 2017, the last trading day before the public announcement of the merger, the aggregate value of the merger consideration was approximately $9.3 billion. The exchange ratio is fixed and will not be adjusted on account of any change in price of either ONEOK common stock or ONEOK Partners common units prior to completion of the merger. No fractional shares of ONEOK common stock will be issued in the merger, and ONEOK Partners common unitholders will, instead, receive cash in lieu of fractional shares of ONEOK common stock. Holders of shares of ONEOK common stock (the “ONEOK shareholders”) will continue to own their existing ONEOK common stock. Based on the estimated number of shares of ONEOK common stock and ONEOK Partners common units that will be outstanding immediately prior to the closing of the merger, upon the closing of the merger, former ONEOK Partners common unitholders will own approximately 44.5% and current ONEOK shareholders will own approximately 55.5% of the combined company, respectively.

ONEOK and ONEOK Partners will each hold special meetings of their shareholders and unitholders, respectively, in connection with the proposed merger. At the special meeting of ONEOK shareholders (the “ONEOK special meeting”), the ONEOK shareholders will be asked to vote on the proposal to approve the issuance of ONEOK common stock to ONEOK Partners common unitholders pursuant to the merger agreement (the “ONEOK stock issuance proposal”), and to approve an amendment of ONEOK’s amended and restated certificate of incorporation (the “ONEOK certificate of incorporation”) to increase the number of authorized shares of common stock from 600,0000,000 to 1,200,000,000 (the “ONEOK charter amendment proposal”). Approval of the ONEOK stock issuance proposal requires the affirmative vote of a majority of the shares of ONEOK common stock voted at the ONEOK special meeting. Approval of the ONEOK charter amendment proposal requires the affirmative vote of holders of a majority of the outstanding shares of ONEOK common stock. At the special meeting of ONEOK Partners unitholders, the ONEOK Partners unitholders will be asked to vote on the proposal to approve the merger agreement (the “merger proposal”). Approval of the merger proposal requires the affirmative vote of holders of a majority of the outstanding ONEOK Partners common units and Class B units, voting as a single class.

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We cannot complete the merger unless the ONEOK shareholders approve the ONEOK stock issuance proposal and the ONEOK Partners unitholders approve the merger proposal. Accordingly, your vote is very important regardless of the number of shares of ONEOK common stock or ONEOK Partners common units you own. Voting instructions are set forth inside this joint proxy statement/prospectus.

In light of the fact that certain ONEOK directors are on the ONEOK Partners board and certain ONEOK directors own ONEOK Partners common units, and certain provisions of the ONEOK certificate of incorporation regarding the ability of directors who are in any way interested in or connected to a party to a transaction with ONEOK to vote on the transaction, the ONEOK board formed a special committee of independent directors that neither sat on the ONEOK Partners board nor owned ONEOK Partners common units to consider and approve the transaction. The special committee of the board of directors of ONEOK recommends that the ONEOK shareholders vote FOR the ONEOK stock issuance proposal and FOR the adjournment of the ONEOK special meeting if necessary to solicit additional proxies at the time of the ONEOK special meeting if there are not sufficient votes to approve the matters to be considered at the special meeting. ONEOK shareholders should be aware that some of ONEOK’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK shareholders. See “The Merger—Interests of Certain Persons in the Merger.” The board of directors of ONEOK recommends that ONEOK shareholders vote FOR the ONEOK charter amendment proposal.

The ONEOK Partners conflicts committee and the ONEOK Partners board each recommend that the ONEOK Partners unitholders vote FOR the merger proposal. The ONEOK Partners board recommends that the ONEOK Partners unitholders vote FOR the ONEOK Partners adjournment proposal. ONEOK Partners common unitholders should be aware that some of ONEOK Partners’ directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK Partners common unitholders. See “The Merger—Interests of Certain Persons in the Merger.”

This joint proxy statement/prospectus provides you with detailed information about the proposed merger and related matters. You are encouraged to read the entire document carefully. In particular, see “Risk Factors” beginning on page 22 of this joint proxy statement/prospectus for a discussion of risks relevant to the merger and ONEOK’s business following the merger.

Shares of ONEOK common stock are listed on the New York Stock Exchange (“NYSE”) under the symbol “OKE,” and ONEOK Partners common units are listed on the NYSE under the symbol “OKS.” The last reported sale price of ONEOK common stock on the NYSE on March 3, 2017 was $56.42. The last reported sale price of ONEOK Partners common units on the NYSE on March 3, 2017 was $54.74.

 

John W. Gibson

Chairman of the Board of Directors of

ONEOK, Inc. and ONEOK Partners GP, L.L.C.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or has determined if this document is truthful or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated                     , 2017 and is being first mailed to ONEOK Partners unitholders and ONEOK shareholders on or about                     , 2017.

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Tulsa, Oklahoma

, 2017

ONEOK, INC.

100 West Fifth Street

Tulsa, Oklahoma 74103

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the shareholders of ONEOK, Inc.:

A special meeting (the “ONEOK special meeting”) of holders of shares of common stock (“ONEOK shareholders”) of ONEOK, Inc. (“ONEOK”) will be held on                     , 2017 at                     , local time, at ONEOK Plaza, 100 West Fifth Street, Tulsa, Oklahoma 74103, for the following purposes:

 

•

to consider and vote upon a proposal to approve the issuance (the “ONEOK stock issuance”) of shares of common stock of ONEOK, par value $0.01 per share (“ONEOK common stock”), in connection with the merger (the “merger”) contemplated by the Agreement and Plan of Merger (the “merger agreement”), dated as of January 31, 2017, by and among ONEOK, New Holdings Subsidiary, LLC, a Delaware limited liability company (“Merger Sub”), ONEOK Partners, L.P., a Delaware limited partnership (“ONEOK Partners”), and ONEOK Partners GP, L.L.C., a Delaware limited liability company and the general partner of ONEOK Partners (the “ONEOK Partners GP”) (the “ONEOK stock issuance proposal”);

 

•

to approve an amendment of ONEOK’s amended and restated certificate of incorporation to increase the number of authorized shares of common stock from 600,000,000 to 1,200,000,000 (the “ONEOK charter amendment proposal”); and

 

•

to consider and vote on a proposal to approve the adjournment of the ONEOK special meeting, if necessary to solicit additional proxies if there are not sufficient votes to approve the foregoing proposals at the time of the ONEOK special meeting (the “ONEOK adjournment proposal”).

Approval of the ONEOK stock issuance proposal requires the affirmative vote of a majority of the shares of ONEOK common stock voted at the ONEOK special meeting, and approval of the ONEOK adjournment proposal requires the affirmative vote of holders of a majority of the shares of ONEOK common stock present in person or represented by proxy at the ONEOK special meeting and entitled to vote thereon. We cannot complete the merger unless the holders of shares of ONEOK common stock (the “ONEOK shareholders”) approve the ONEOK stock issuance proposal. Accordingly, your vote is very important regardless of the number of ONEOK common stock you own.

A special committee (the “ONEOK special committee”) of the board of directors of ONEOK (the “ONEOK board”) comprised of independent directors unanimously determined that the merger, the merger agreement, and the transactions contemplated thereby, including the ONEOK stock issuance, are advisable and fair to, and in the best interests of, ONEOK and the ONEOK shareholders. The ONEOK special committee unanimously approved the merger, the merger agreement and the transactions contemplated thereby, including the ONEOK stock issuance, and recommends that the ONEOK shareholders vote FOR the ONEOK stock issuance proposal and FOR the ONEOK adjournment proposal.

ONEOK shareholders should be aware that some of ONEOK’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK shareholders. See “The Merger—Interests of Certain Persons in the Merger.”

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Approval of the ONEOK charter amendment proposal requires the affirmative vote of holders of a majority of the outstanding shares of ONEOK common stock. Completion of the merger is not conditioned upon approval of the ONEOK charter amendment proposal. However, even if the ONEOK shareholders approve the ONEOK charter amendment proposal, ONEOK will not file with the Secretary of State of the State of Oklahoma the amendment to ONEOK’s amended and restated certificate of incorporation (the “ONEOK certificate of incorporation”) to increase the number of authorized shares of common stock from 600,000,000 to 1,200,000,000 unless the merger is completed.

The ONEOK board unanimously determined that the ONEOK charter amendment proposal is advisable and in the best interests of ONEOK and the ONEOK shareholders. The ONEOK board unanimously approved the ONEOK charter amendment proposal and recommends that the ONEOK shareholders vote FOR the ONEOK charter amendment proposal.

Only ONEOK shareholders of record at the close of business on                     , 2017 are entitled to notice of and to vote at the ONEOK special meeting. A list of shareholders entitled to vote at the ONEOK special meeting will be available for inspection at ONEOK’s offices in Tulsa, Oklahoma for any purpose relevant to the ONEOK special meeting during normal business hours for a period of ten days before the meeting and at the ONEOK special meeting. References to the ONEOK special meeting in this joint proxy statement/prospectus are to such special meeting as may be adjourned or postponed.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ONEOK SPECIAL MEETING, PLEASE SUBMIT YOUR PROXY IN ONE OF THE FOLLOWING WAYS:

 

•

If you hold your ONEOK common stock in the name of a bank, broker or other nominee, you should follow the instructions provided by your bank, broker or other nominee when voting your ONEOK common stock.

 

•

If you hold your ONEOK common stock in your own name, you may submit your proxy by:

 

○

using the toll-free telephone number shown on the proxy card;

 

○

using the Internet website shown on the proxy card; or

 

○

marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope. It requires no postage if mailed in the United States.

The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement as well as a description of the ONEOK stock issuance proposal and the ONEOK charter amendment proposal. You are urged to read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your ONEOK common stock, please contact ONEOK’s proxy solicitor:

Morrow Sodali LLC

470 West Avenue

Stamford, CT 06902

Banks and Brokers Call: (203) 658-9400

All Others Call Toll Free: (800) 662-5200

Email: ONEOKinfo@morrowsodali.com

By order of the special committee of the Board of Directors of

ONEOK, Inc.,

 

Terry K. Spencer

President and Chief Executive Officer

ONEOK, Inc.

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Tulsa, Oklahoma

, 2017

ONEOK Partners, L.P.

100 West Fifth Street

Tulsa, Oklahoma 74103

NOTICE OF SPECIAL MEETING OF UNITHOLDERS

To the common unitholders of ONEOK Partners, L.P.:

A special meeting (the “ONEOK Partners special meeting”) of unitholders of ONEOK Partners, L.P. (“ONEOK Partners”) will be held on                     , 2017 at                     , local time, at ONEOK Plaza, 100 West Fifth Street, Tulsa, Oklahoma 74103, for the following purposes:

 

•

to consider and vote upon a proposal to approve the Agreement and Plan of Merger (the “merger agreement”), dated as of January 31, 2017, by and among ONEOK, Inc. (“ONEOK”), New Holdings Subsidiary, LLC (“Merger Sub”), ONEOK Partners, and ONEOK Partners GP, L.L.C. (“ONEOK Partners GP”) the general partner of ONEOK Partners (the “merger proposal”); and

 

•

to vote on a proposal to approve the adjournment of the ONEOK Partners special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the above proposals (the “ONEOK Partners adjournment proposal”).

Approval of the merger proposal requires the affirmative vote of holders of a majority of the outstanding common units representing limited partner interests in ONEOK Partners (“ONEOK Partners common units”) and ONEOK Partners Class B units, voting as a single class. The ONEOK Partners adjournment proposal requires approval by (i) if a quorum does not exist, the affirmative vote of holders of a majority of the outstanding ONEOK Partners common units and Class B units, voting as a single class, entitled to vote represented in person or by proxy at the ONEOK Partners special meeting or (ii) if a quorum does exist, the affirmative vote of holders of a majority of the outstanding ONEOK Partners common units and Class B units, voting as a single class. We cannot complete the merger unless the ONEOK Partners unitholders approve the merger proposal. Accordingly, your vote is very important regardless of the number of ONEOK Partners common units you own.

The conflicts committee (which consists of the three members of ONEOK Partners board who are independent under ONEOK Partners’ governance guidelines and the listing standards of the NYSE and who are not also executive officers or members of the board of directors of ONEOK) of the board of directors of ONEOK Partners GP, L.L.C. (the “ONEOK Partners conflicts committee”) and the board of directors of ONEOK Partners GP, L.L.C. (the “ONEOK Partners board”) each have determined that the merger is fair and reasonable to, and in the best interests of, ONEOK Partners and the ONEOK Partners common unitholders other than ONEOK, ONEOK Partners GP and their affiliates (the “ONEOK Partners unaffiliated unitholders”), and have unanimously approved the merger agreement and the merger. The ONEOK Partners conflicts committee and the ONEOK Partners board each recommend that the ONEOK Partners unitholders vote FOR the merger proposal. The ONEOK Partners board recommends that the ONEOK Partners unitholders vote FOR the ONEOK Partners adjournment proposal. For more information regarding the recommendation of the ONEOK Partners conflicts committee and

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the ONEOK Partners board, see “The Merger—Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger.”

ONEOK Partners common unitholders should be aware that some of ONEOK Partners’ directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK Partners common unitholders. See “The Merger—Interests of Certain Persons in the Merger.”

Only ONEOK Partners common unitholders of record at the close of business on                     , 2017 are entitled to notice of and to vote at the ONEOK Partners special meeting. A list of unitholders entitled to vote at the ONEOK Partners special meeting will be available for inspection at ONEOK Partners’ offices in Tulsa, Oklahoma for any purpose relevant to the ONEOK Partners special meeting during normal business hours for a period of ten days before the meeting and at the ONEOK Partners special meeting. References to the ONEOK Partners special meeting in this joint proxy statement/prospectus are to such special meeting as may be adjourned or postponed.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ONEOK PARTNERS SPECIAL MEETING, PLEASE SUBMIT YOUR PROXY IN ONE OF THE FOLLOWING WAYS:

 

•

If you hold your ONEOK Partners common units in the name of a bank, broker or other nominee, you should follow the instructions provided by your bank, broker or other nominee when voting your ONEOK Partners common units.

 

•

If you hold your ONEOK Partners common units in your own name, you may submit your proxy by:

 

○

using the toll-free telephone number shown on the proxy card;

 

○

using the Internet website shown on the proxy card; or

 

○

marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope. It requires no postage if mailed in the United States.

The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement. You are urged to read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your ONEOK Partners common units, please contact ONEOK Partners’ proxy solicitor:

Morrow Sodali LLC

470 West Avenue

Stamford, CT 06902

Banks and Brokers Call: (203) 658-9400

All Others Call Toll Free: (800) 662-5200

Email: ONEOKinfo@morrowsodali.com

By order of the Board of Directors of

ONEOK Partners GP, L.L.C.,

 

Terry K. Spencer

President and Chief Executive Officer

ONEOK Partners GP, L.L.C.

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IMPORTANT NOTE ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”) constitutes a proxy statement of ONEOK Partners under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the solicitation of proxies for the ONEOK Partners special meeting to, among other things, approve the merger proposal.

This joint proxy statement/prospectus also constitutes a proxy statement of ONEOK under Section 14(a) of the Exchange Act with respect to the solicitation of proxies for the ONEOK special meeting to, among other things, approve the ONEOK stock issuance proposal, and a prospectus of ONEOK under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), for shares of ONEOK common stock that will be issued to ONEOK Partners common unitholders in the merger pursuant to the merger agreement.

As permitted under the rules of the SEC, this joint proxy statement/prospectus incorporates by reference important business and financial information about ONEOK and ONEOK Partners from other documents filed with the SEC that are not included in or delivered with this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 146. You can obtain any of the documents incorporated by reference into this document from ONEOK or ONEOK Partners, as the case may be, or from the SEC’s website at http://www.sec.gov. This information is also available to you without charge upon your request in writing or by telephone from ONEOK or ONEOK Partners at the following addresses and telephone numbers:

ONEOK, Inc.

ONEOK Partners, L.P.

Attention: Investor Relations

100 West Fifth Street

Tulsa, Oklahoma 74103

Telephone: (918) 588-7000

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference into the documents or this joint proxy statement/prospectus.

You may obtain certain of these documents at ONEOK’s website, http://www.oneok.com, and at ONEOK Partners’ website, http://www.oneokpartners.com. Information contained on ONEOK’s and ONEOK Partners’ websites is expressly not incorporated by reference into this joint proxy statement/prospectus.

In order to receive timely delivery of requested documents in advance of the special meetings, your request should be received no later than                     , 2017. If you request any documents, ONEOK or ONEOK Partners will mail them to you by first class mail, or another equally prompt means, after receipt of your request.

ONEOK and ONEOK Partners have not authorized anyone to give any information or make any representation about the merger, ONEOK or ONEOK Partners that is different from, or in addition to, that contained in this joint proxy statement/prospectus or in any of the materials that have been incorporated by reference into this joint proxy statement/prospectus. Therefore, if anyone distributes this type of information, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this joint proxy statement/prospectus or the solicitation of proxies are unlawful, or you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this joint proxy statement/prospectus does not extend to you. The information contained in this joint proxy statement/prospectus speaks only as of the date of this joint proxy statement/prospectus, or in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. All information in this document concerning ONEOK has been furnished by ONEOK. All information in this document concerning ONEOK Partners has been furnished by ONEOK Partners.

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JOINT PROXY STATEMENT/PROSPECTUS

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS			ii
SUMMARY			1
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ONEOK			15
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ONEOK PARTNERS			16
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION			17
COMPARATIVE PER SHARE AND PER UNIT INFORMATION			18
MARKET PRICES, DIVIDEND AND DISTRIBUTION INFORMATION			20
RISK FACTORS			22
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			28
THE PARTIES			32
THE MERGER			34
THE MERGER AGREEMENT			86
COMPARISON OF RIGHTS OF ONEOK SHAREHOLDERS AND ONEOK PARTNERS COMMON UNITHOLDERS			101
DESCRIPTION OF ONEOK CAPITAL STOCK			125
THE ONEOK SPECIAL MEETING			129
THE ONEOK PROPOSALS			133
THE ONEOK PARTNERS SPECIAL MEETING			136
THE ONEOK PARTNERS PROPOSALS			140
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES			141
SHAREHOLDER AND UNITHOLDER PROPOSALS			145
LEGAL MATTERS			146
EXPERTS			146
WHERE YOU CAN FIND MORE INFORMATION			146
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			148
Annex A—Merger Agreement			A-1
Annex B—Opinion of J.P. Morgan Securities LLC			B-1
Annex C—Opinion of Barclays Capital Inc.			C-1
Annex D—Charter Amendment			D-1

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

Important Information and Risks. The following are brief answers to some questions that you may have regarding the proposed merger and the ONEOK and ONEOK Partners special meetings. You should read and consider carefully the remainder of this joint proxy statement/prospectus, including the Risk Factors beginning on page 22 and the attached Annexes, because the information in this section does not provide all of the information that might be important to you. Additional important information and descriptions of risk factors are also contained in the documents incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 146.

 

Q:	What is the proposed transaction and why am I receiving these materials?

 

A:

ONEOK and ONEOK Partners have agreed to combine by merging Merger Sub, a subsidiary of ONEOK, with and into ONEOK Partners under the terms of the merger agreement that is described in this joint proxy statement/prospectus and attached as Annex A. You are receiving this document because the merger cannot be completed without certain approvals of the ONEOK shareholders and the ONEOK Partners unitholders.

 

Q:	Why are ONEOK and ONEOK Partners proposing the merger?

 

A:

ONEOK and ONEOK Partners believe that the merger will benefit both ONEOK shareholders and ONEOK Partners unitholders. See “The Merger—Recommendation of the ONEOK Special Committee and its Reasons for the Merger” and “The Merger—Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger.”

 

Q:	What will ONEOK Partners common unitholders receive in the merger?

 

A:

If the merger is completed, each outstanding ONEOK Partners common unit not owned by ONEOK or its subsidiaries will be converted into the right to receive 0.985 of a share of ONEOK common stock (such consideration, the “merger consideration” and such ratio, the “exchange ratio”). Based on the closing price of ONEOK common stock on January 31, 2017, the last trading day before the public announcement of the merger, the aggregate value of the merger consideration was approximately $9.3 billion. The exchange ratio is fixed and will not be adjusted on account of any change in price of either ONEOK common stock or ONEOK Partners common units prior to completion of the merger. If the exchange ratio would result in a ONEOK Partners common unitholder being entitled to receive a fraction of a share of ONEOK common stock, such ONEOK Partners common unitholder will receive cash from ONEOK in lieu of such fractional interest in an amount equal to such fractional interest multiplied by the average of the closing sale prices of a share of ONEOK common stock as reported on the New York Stock Exchange (“NYSE”) for the five consecutive full trading days ending at the close of trading on the full trading day immediately preceding the closing date of the merger.

 

Q:	What will ONEOK shareholders receive in the merger?

 

A:

ONEOK shareholders will simply retain the ONEOK common stock they currently own. They will not receive any additional ONEOK common stock in the merger.

 

Q:	Where will my shares or units trade after the merger?

 

A:

ONEOK common stock will continue to trade on the NYSE under the symbol “OKE.” ONEOK Partners common units will no longer be publicly traded after the completion of the merger.

 

Q:	What happens to my future distributions or dividends?

 

A:

If the date of the closing of the merger is prior to the record date set by the ONEOK board in connection with declared dividends to be paid by ONEOK to its shareholders, former ONEOK Partners

 

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common unitholders will receive dividends on the ONEOK common stock they receive in the merger at the discretion of the ONEOK board. If the date of the closing of the merger is after the record date set by the ONEOK board in connection with declared dividends to be paid by ONEOK to its shareholders, then a former ONEOK Partners common unitholder will not receive dividends for that quarter on the ONEOK common stock it receives in the merger, but will receive distributions for that quarter declared by ONEOK Partners (if any) prior to the closing of the merger, if such former ONEOK Partners common unitholder was a record holder of such common units on the record date with respect to such distribution. ONEOK Partners common unitholders will not receive both distributions from ONEOK Partners and dividends from ONEOK for the same quarter. See “Market Prices, Dividend and Distribution Information.”

Current ONEOK shareholders will continue to receive dividends on their ONEOK common stock at the discretion of the ONEOK board. See “Comparison of Rights of ONEOK Shareholders and ONEOK Partners Common Unitholders.”

ONEOK management intends to recommend to the ONEOK board an increase to the quarterly dividend on the ONEOK common stock of approximately 21% to $0.745 per share (an annualized dividend of $2.98 per share) for the first dividend declaration date immediately following the completion of the merger. The current annualized distribution for each ONEOK Partners common unit is $3.16 (based on the quarterly distribution of $0.79 for each ONEOK Partners common unit that was declared and paid with respect to the quarter ended December 31, 2016). Based on the exchange ratio, the annualized distribution for each ONEOK Partners common unit exchanged for 0.985 of a share of ONEOK common stock is expected to be approximately $2.94 (based on the expected quarterly dividend of $0.745 per ONEOK common share) following the completion of the merger. Accordingly, a ONEOK Partners common unitholder is expected to initially receive approximately 7% less in quarterly cash distributions after giving effect to the merger, but through expected dividend growth over time, dividends are expected to exceed the amount of distributions ONEOK Partners unitholders currently receive.

 

Q:	When and where will the special meetings be held?

 

A:

ONEOK shareholders: The ONEOK special meeting will be held at ONEOK Plaza, 100 West Fifth Street, Tulsa, Oklahoma 74103, on                     , 2017, at                     , local time.

ONEOK Partners unitholders: The ONEOK Partners special meeting will be held at ONEOK Plaza, 100 West Fifth Street, Tulsa, Oklahoma 74103, on                     , 2017, at                     , local time.

 

Q:	Who is entitled to vote at the special meetings?

 

A:

ONEOK shareholders: The record date for the ONEOK special meeting is                     , 2017. Only ONEOK shareholders of record as of the close of business on the record date are entitled to notice of, and to vote at, the ONEOK special meeting.

ONEOK Partners unitholders: The record date for the ONEOK Partners special meeting is                     , 2017. Only ONEOK Partners common unitholders and Class B unitholders (together, the “ONEOK Partners unitholders”) of record as of the close of business on the record date are entitled to notice of, and to vote at, the ONEOK Partners special meeting.

 

Q:	What constitutes a quorum at the special meetings?

 

A:

ONEOK shareholders: The holders of a majority of the outstanding ONEOK common stock, represented in person or by proxy (by submitting a properly executed proxy card or properly submitting your proxy by telephone or Internet), on the record date will constitute a quorum and will permit ONEOK to conduct the proposed business at the ONEOK special meeting. Proxies received but

 

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marked as abstentions will be counted as ONEOK common stock that are present and entitled to vote for purposes of determining the presence of a quorum. If an executed proxy is returned by a bank, broker or other nominee holding ONEOK common stock in “street name” indicating that the broker does not have discretionary authority as to certain ONEOK common stock to vote on a specific proposal (a “broker non-vote” with respect to such proposal), such ONEOK common stock will not be considered present at the ONEOK special meeting for purposes of determining the presence of a quorum and will not be included in the vote.

ONEOK Partners unitholders: The holders of a majority of the outstanding ONEOK Partners common units and Class B units represented in person or by proxy (by submitting a properly executed proxy card or properly submitting a proxy by telephone or Internet) will constitute a quorum and will permit ONEOK Partners to conduct the proposed business at the ONEOK Partners special meeting. Proxies received but marked as abstentions will be counted as units that are present and entitled to vote for purposes of determining the presence of a quorum. Broker non-votes (if any) will not be considered present at the ONEOK Partners special meeting for purposes of determining the presence of a quorum and will not be included in the vote.

 

Q:	What is the vote required to approve each proposal?

 

A:

ONEOK shareholders: Approval of the ONEOK stock issuance proposal requires the affirmative vote of a majority of the shares of ONEOK common stock voted at the ONEOK special meeting, and approval of the ONEOK adjournment proposal requires the affirmative vote of holders of a majority of the shares of ONEOK common stock present in person or represented by proxy at the ONEOK special meeting and entitled to vote thereon.

Approval of the ONEOK charter amendment proposal requires the affirmative vote of holders of a majority of the outstanding shares of ONEOK common stock. Completion of the merger is not conditioned upon approval of the ONEOK charter amendment proposal. However, even if the ONEOK shareholders approve the ONEOK charter amendment proposal, ONEOK will not file with the Secretary of State of the State of Oklahoma the amendment to the ONEOK certificate of incorporation to increase the number of authorized shares of common stock from 600,000,000 to 1,200,000,000 unless the merger is completed.

All of the directors and executive officers of ONEOK beneficially owned, in the aggregate, approximately     % of the outstanding ONEOK common stock as of the record date. ONEOK believes that the directors and executive officers of ONEOK will vote in favor of the ONEOK stock issuance proposal, the ONEOK charter amendment proposal, and the ONEOK adjournment proposal.

ONEOK Partners unitholders: Approval of the merger proposal requires the affirmative vote of holders of a majority of the outstanding ONEOK Partners common units and ONEOK Partners Class B units, voting as a single class. The ONEOK Partners adjournment proposal requires approval by (i) if a quorum does not exist, the affirmative vote of holders of a majority of the outstanding ONEOK Partners common units and Class B units, voting as a single class, entitled to vote represented in person or by proxy at the ONEOK Partners special meeting or (ii) if a quorum does exist, the affirmative vote of holders of a majority of the outstanding ONEOK Partners common units and Class B units, voting as a single class.

Pursuant to the merger agreement, ONEOK has agreed to vote or cause to be voted all ONEOK Partners units beneficially owned by ONEOK and its affiliates in favor of the merger proposal unless there is a ONEOK Partners adverse recommendation change (see “The Merger Agreement—ONEOK Partners GP Recommendation and ONEOK Partners Adverse Recommendation Change”). As of the record date, ONEOK and its affiliates beneficially owned approximately                 % of the outstanding ONEOK Partners common units and                 % of the Class B units, which represent, in the aggregate,                 % of the total outstanding common units and Class B units (assuming the conversion of ONEOK’s Class B units to common units).

 

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All of the directors and executive officers of ONEOK Partners GP beneficially owned, in the aggregate, approximately     % of the outstanding ONEOK Partners common units and Class B units as of the record date. ONEOK and ONEOK Partners believe that the directors and executive officers of ONEOK Partners GP will vote in favor of the merger proposal and the ONEOK Partners adjournment proposal.

 

Q:	How do I vote my ONEOK common stock or ONEOK Partners common units if I hold them in my own name?

 

A:

ONEOK shareholders: After you have read this joint proxy statement/prospectus carefully, please respond by completing, signing and dating your proxy card and returning it in the enclosed postage-paid envelope, or by submitting your proxy by telephone or the Internet as soon as possible in accordance with the instructions provided under “The ONEOK Special Meeting—Voting Procedures—Voting by ONEOK Shareholders.”

ONEOK Partners common unitholders: After you have read this joint proxy statement/prospectus carefully, please respond by completing, signing and dating your proxy card and returning it in the enclosed postage-paid envelope, or by submitting your proxy by telephone or the Internet as soon as possible in accordance with the instructions provided under “The ONEOK Partners Special Meeting—Voting Procedures—Voting by ONEOK Partners Common Unitholders.”

 

Q:	If my ONEOK common stock or ONEOK Partners common units are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee vote them for me?

 

A:

ONEOK shareholders: If your ONEOK common stock is held in “street name” in a stock brokerage account or by a broker, bank or other nominee, you must provide the record holder of your ONEOK common stock with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote ONEOK common stock held in street name by returning a proxy card directly to ONEOK or by voting in person at the ONEOK special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Your broker, bank or other nominee is obligated to provide you with a voting instruction card for you to use.

Under the rules of the NYSE, brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NYSE determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that the stock issuance proposal is a “non-routine” matter and that each of the ONEOK charter amendment proposal and the ONEOK adjournment proposal is a “routine” matter. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

If you are a ONEOK shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee may not vote your shares on the stock issuance proposal, which broker non-votes, if any, will have no effect on the vote count for this proposal;

 

•

your broker, bank or other nominee may vote your shares on the ONEOK charter amendment proposal; and

 

•

your broker, bank or other nominee may vote your shares on the ONEOK adjournment proposal.

ONEOK Partners common unitholders: If your ONEOK Partners common units are held in “street name” in a stock brokerage account or by a broker, bank or other nominee, you must provide the record

 

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holder of your ONEOK Partners common units with instructions on how to vote your units. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote ONEOK Partners common units held in street name by returning a proxy card directly to ONEOK Partners or by voting in person at the ONEOK Partners special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Your broker, bank or other nominee is obligated to provide you with a voting instruction card for you to use.

Under the rules of the NYSE, brokers who hold units in street name for a beneficial owner of those units typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NYSE determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the ONEOK Partners special meeting are such “non-routine” matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of units to vote on a particular proposal for which the broker does not have discretionary voting power.

If you are a ONEOK Partners common unitholder and you do not instruct your broker, bank or other nominee on how to vote your units:

 

•

your broker, bank or other nominee may not vote your units on the merger proposal, which broker non-votes, if any, will have the same effect as a vote “AGAINST” this proposal; and

 

•

your broker, bank or other nominee may not vote your units on the ONEOK Partners adjournment proposal, which broker non-votes, if any, will have the same effect as a vote “AGAINST” this proposal if a quorum is present, and will have no effect on the outcome of any vote on the proposal if a quorum is not present.

 

Q:	When do you expect the merger to be completed?

 

A:

We currently expect the merger to close in the second quarter of 2017. A number of conditions must be satisfied before ONEOK and ONEOK Partners can complete the merger, including the approval of the ONEOK stock issuance proposal by the ONEOK shareholders and the approval of the merger proposal by the ONEOK Partners unitholders. Although ONEOK and ONEOK Partners cannot be sure when all of the conditions to the merger will be satisfied, ONEOK and ONEOK Partners expect to complete the merger as soon as practicable following the ONEOK and ONEOK Partners special meetings (assuming the ONEOK stock issuance proposal and the merger proposal are approved by the ONEOK shareholders and ONEOK Partners unitholders, respectively), subject to, among other things, the registration statement of which this joint proxy statement/prospectus forms a part having been declared effective under the Securities Act. See “The Merger Agreement—Conditions to Completion of the Merger” and “Risk Factors—Risks Related to the Merger.” The merger is subject to conditions, including some conditions that may not be satisfied on a timely basis, if at all. Failure to complete the merger, or significant delays in completing the merger, could negatively affect each party’s future business and financial results and the trading prices of ONEOK common stock and ONEOK Partners common units.

 

Q:	How do the ONEOK special committee and the ONEOK board recommend that the ONEOK shareholders vote?

 

A:

The ONEOK special committee recommends that ONEOK shareholders vote FOR the ONEOK stock issuance proposal and FOR the ONEOK adjournment proposal. The ONEOK board recommends that ONEOK shareholders vote FOR the ONEOK charter amendment proposal.

On January 31, 2017, in light of the fact that certain ONEOK directors are on the ONEOK Partners board and certain ONEOK directors own ONEOK Partners common units, and certain provisions of the

 

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ONEOK certificate of incorporation regarding the ability of directors who are in any way interested in or connected to a party to a transaction with ONEOK to vote on the transaction, the ONEOK board formed a special committee of independent directors that neither sat on the ONEOK Partners board nor owned ONEOK Partners common units to consider and approve the transaction. The ONEOK special committee unanimously determined that the ONEOK stock issuance, the merger, the merger agreement, the exchange ratio and the transactions contemplated thereby, are advisable and fair to, and in the best interests of, ONEOK and the ONEOK shareholders. The ONEOK special committee unanimously approved the merger agreement, the merger, the ONEOK stock issuance in connection therewith and the transactions contemplated thereby, and the ONEOK special committee unanimously recommends that the ONEOK shareholders vote FOR the ONEOK stock issuance proposal.

For more information regarding the recommendation of the ONEOK special committee, see “The Merger—Recommendation of the ONEOK Special Committee and its Reasons for the Merger.”

ONEOK shareholders should be aware that some of ONEOK’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK shareholders. See “The Merger—Interests of Certain Persons in the Merger.”

The ONEOK board recommends that the ONEOK shareholders vote FOR the ONEOK charter amendment proposal.

 

Q:	How do the ONEOK Partners conflicts committee and the ONEOK Partners board recommend that the ONEOK Partners unitholders vote?

 

A:

The ONEOK Partners conflicts committee and the ONEOK Partners board each recommend that the ONEOK Partners unitholders vote FOR the merger proposal. The ONEOK Partners board recommends that the ONEOK Partners unitholders vote FOR the ONEOK Partners adjournment proposal.

On January 31, 2017, the ONEOK Partners conflicts committee (which consists of the three members of ONEOK Partners board who are independent under ONEOK Partners’ governance guidelines and the listing standards of the NYSE and who are not also executive officers or members of the ONEOK board) and the ONEOK Partners board each unanimously determined that the merger is fair and reasonable to, and in the best interests of, ONEOK Partners and the ONEOK Partners unaffiliated unitholders, and unanimously approved the merger agreement and the merger. The ONEOK Partners conflicts committee and the ONEOK Partners board each unanimously recommend that the ONEOK Partners unitholders vote FOR the merger proposal. The ONEOK Partners conflicts committee’s approval constitutes “Special Approval,” as such term is defined by the Third Amended and Restated Agreement of Limited Partnership of ONEOK Partners, dated as of September 15, 2006, as amended or supplemented from time to time (the “ONEOK Partners partnership agreement”).

For more information regarding the recommendation of the ONEOK Partners conflicts committee in making such determination under the ONEOK Partners partnership agreement, see “The Merger—Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger.”

ONEOK Partners common unitholders should be aware that some of ONEOK Partners’ directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK Partners common unitholders. See “The Merger—Interests of Certain Persons in the Merger.”

 

Q:	What are the U.S. federal income tax consequences to a ONEOK Partners common unitholder as a result of the merger?

 

A:

The receipt of ONEOK common stock and cash in lieu of fractional shares, if any, in exchange for ONEOK Partners common units pursuant to the merger agreement should be a taxable transaction to

 

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U.S. Holders (as defined in “United States Federal Income Tax Consequences”) for U.S. federal income tax purposes. In such case, a U.S. Holder will generally recognize capital gain or loss on the receipt of ONEOK common stock and any cash in lieu of fractional shares, if any, in exchange for ONEOK Partners common units. However, a portion of this gain or loss, which could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to “unrealized receivables,” including depreciation recapture, or to “inventory items” owned by ONEOK Partners and its subsidiaries. Passive losses that were not deductible by a U.S. Holder in prior taxable periods because they exceeded a U.S. Holder’s share of ONEOK Partners’ income may become available to offset a portion of the gain recognized by such U.S. Holder. See “United States Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of the merger.

 

Q:	What are the U.S. federal income tax consequences for a ONEOK Partners common unitholder of the ownership of ONEOK common stock after the merger is completed?

 

A:

ONEOK is classified as a corporation for U.S. federal income tax purposes and is subject to U.S. federal income tax on its taxable income. A distribution of cash by ONEOK to a shareholder who is a U.S. Holder will generally be included in such U.S. Holder’s income as ordinary dividend income to the extent of ONEOK’s current or accumulated “earnings and profits” as determined under U.S. federal income tax principles. A portion of the cash distributed to ONEOK shareholders by ONEOK after the merger may exceed ONEOK’s current and accumulated earnings and profits. Distributions of cash in excess of ONEOK’s current and accumulated earnings and profits will be treated as a non-taxable return of capital reducing a U.S. Holder’s adjusted tax basis in such U.S. Holder’s ONEOK common stock and, to the extent the distribution exceeds such shareholder’s adjusted tax basis, as capital gain from the sale or exchange of such ONEOK common stock. See “United States Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of owning and disposing of ONEOK common stock received in the merger.

 

Q:	Are ONEOK shareholders or ONEOK Partners common unitholders entitled to appraisal rights?

 

A:

No. Neither ONEOK shareholders nor ONEOK Partners common unitholders are entitled to appraisal rights in connection with the merger under applicable law or contractual appraisal rights under ONEOK’s organizational documents, the ONEOK Partners partnership agreement or the merger agreement.

 

Q:	What if I do not vote?

 

A:

If you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the ONEOK common stock represented by your proxy will be voted as recommended by the ONEOK special committee or ONEOK board with respect to that proposal or the ONEOK Partners common units represented by your proxy will be voted as recommended by the ONEOK Partners board with respect to that proposal. Unless a ONEOK shareholder or ONEOK Partners unitholder, as applicable, checks the box on its proxy card to withhold discretionary authority, the applicable proxy holders may use their discretion to vote on other matters relating to the ONEOK special meeting or ONEOK Partners special meeting, as applicable.

For purposes of each of the ONEOK special meeting and the ONEOK Partners special meeting, an abstention occurs when a shareholder or unitholder, as applicable, attends the applicable special meeting in person and does not vote or returns a proxy with an “abstain” instruction.

ONEOK

Stock Issuance Proposal: An abstention will have the same effect as a vote cast “AGAINST” the stock issuance proposal. If a ONEOK shareholder is not present in person at the ONEOK special meeting and

 

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does not respond by proxy, it will have no effect on the vote count for the stock issuance proposal (assuming a quorum is present).

ONEOK Charter Amendment Proposal: An abstention or failure to vote will have the same effect as a vote cast “AGAINST” the ONEOK charter amendment proposal.

ONEOK Adjournment Proposal: An abstention will have the same effect as a vote “AGAINST” the ONEOK adjournment proposal. If a ONEOK shareholder is not present in person at the ONEOK special meeting and does not respond by proxy, it will have no effect on the vote count for the ONEOK adjournment proposal.

ONEOK Partners

Merger Proposal: An abstention or failure to vote will have the same effect as a vote cast “AGAINST” the merger proposal.

ONEOK Partners Adjournment Proposal: An abstention will have the same effect as a vote “AGAINST” the ONEOK Partners adjournment proposal. Units not in attendance at the ONEOK Partners special meeting and for which no proxy has been submitted will have no effect on the outcome of any vote to adjourn the ONEOK Partners special meeting if a quorum is not present. If a quorum is present, they would have the same effect as a vote “AGAINST” the ONEOK Partners adjournment proposal.

 

Q:	If I am planning to attend a special meeting in person, should I still vote by proxy?

 

A:

Yes. Whether or not you plan to attend the ONEOK special meeting or the ONEOK Partners special meeting, as applicable, you should vote by proxy. Your ONEOK common stock or ONEOK Partners common units will not be voted if you do not vote by proxy or do not vote in person at the ONEOK special meeting or the ONEOK Partners special meeting, as applicable.

 

Q:	Who may attend the ONEOK special meeting and the ONEOK Partners special meeting?

 

A:

ONEOK shareholders (or their authorized representatives) and ONEOK’s invited guests may attend the ONEOK special meeting. ONEOK Partners unitholders (or their authorized representatives) and ONEOK Partners’ invited guests may attend the ONEOK Partners special meeting. All attendees should be prepared to present government-issued photo identification (such as a driver’s license or passport) for admittance.

 

Q:	Can I change my vote after I have submitted my proxy?

 

A:

Yes. If you own your ONEOK common stock or ONEOK Partners common units in your own name, you may revoke your proxy at any time prior to its exercise by:

 

•

giving written notice of revocation to the Secretary of ONEOK Partners GP or the Secretary of ONEOK, as applicable, at or before the ONEOK special meeting or the ONEOK Partners special meeting, as applicable;

 

•

appearing and voting in person at the ONEOK special meeting or the ONEOK Partners special meeting, as applicable; or

 

•

properly completing and executing a later dated proxy and delivering it to the Secretary of ONEOK Partners GP or the Secretary of ONEOK, as applicable, at or before the ONEOK special meeting or the ONEOK Partners special meeting, as applicable.

Your presence without voting at the ONEOK special meeting or the ONEOK Partners special meeting, as applicable, will not automatically revoke your proxy, and any revocation during the meeting will not affect votes previously taken.

 

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Q:	What should I do if I receive more than one set of voting materials for the ONEOK special meeting or the ONEOK Partners special meeting?

 

A:

You may receive more than one set of voting materials for the ONEOK special meeting or the ONEOK Partners special meeting and the materials may include multiple proxy cards or voting instruction cards. For example, you will receive a separate voting instruction card for each brokerage account in which you hold ONEOK common stock or ONEOK Partners common units. Additionally, if you are a holder of record registered in more than one name, you will receive more than one proxy card. Finally, if you hold both ONEOK common stock and ONEOK Partners common units, you will receive two separate packages of proxy materials. Please complete, sign, date and return each proxy card and voting instruction card that you receive according to the instructions on it.

 

Q:	Whom do I call if I have further questions about voting, the special meetings or the merger?

 

A:

ONEOK shareholders and ONEOK Partners common unitholders who have questions about the merger, including the procedures for voting their shares or units, or who desire additional copies of this joint proxy statement/prospectus or additional proxy cards should contact:

 

ONEOK Shareholders Morrow Sodali LLC 470 West Avenue Stamford, CT 06902 Banks and Brokers Call: (203) 658-9400 All Others Call Toll Free: (800) 662-5200 Email: ONEOKinfo@morrowsodali.com		ONEOK Partners Common Unitholders Morrow Sodali LLC 470 West Avenue Stamford, CT 06902 Banks and Brokers Call: (203) 658-9400 All Others Call Toll Free: (800) 662-5200 Email: ONEOKinfo@morrowsodali.com
or		or
ONEOK, Inc. 100 West Fifth Street Attention: Investor Relations Tulsa, Oklahoma 74103 Telephone: (918) 588-7000		ONEOK Partners, L.P. 100 West Fifth Street Attention: Investor Relations Tulsa, Oklahoma 74103 Telephone: (918) 588-7000

 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for the approval of the applicable proposals described in this joint proxy statement/prospectus. In addition, you should read and carefully consider the risks associated with each of ONEOK and ONEOK Partners and their respective businesses. These risks can be found in ONEOK’s and ONEOK Partners’ respective Annual Reports on Form 10-K for the year ended December 31, 2016, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. For further information regarding the documents incorporated into this joint proxy statement/prospectus by reference, please see the section titled “Where You Can Find More Information” beginning on page 146. Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described in the documents incorporated by reference could have a material adverse effect on ONEOK’s, ONEOK Partners’ or the combined organization’s businesses, financial condition, cash flows and results of operations and could result in a decline in the trading prices of the ONEOK common stock or the ONEOK Partners common units.

Risks Related to the Merger

The merger is subject to conditions, including some conditions that may not be satisfied on a timely basis, if at all. Failure to complete the merger, or significant delays in completing the merger, could negatively affect each party’s future business and financial results and the trading prices of ONEOK common stock and ONEOK Partners common units.

The completion of the merger is subject to a number of conditions. The completion of the merger is not assured and is subject to risks, including the risk that the ONEOK shareholder approval or the ONEOK Partners unitholder approval is not obtained. Further, the merger may not be completed even if the ONEOK shareholder approval and the ONEOK Partners unitholder approval are obtained. The merger agreement contains conditions, some of which are beyond the parties’ control, that, if not satisfied or waived, may prevent, delay or otherwise result in the merger not occurring. See “The Merger Agreement—Conditions to Completion of the Merger.”

If the merger is not completed, or if there are significant delays in completing the merger, ONEOK’s and ONEOK Partners’ future business and financial results and the trading prices of ONEOK common stock and ONEOK Partners common units could be negatively affected, and each of the parties will be subject to several risks, including the following:

 

•

the parties may be liable for fees or expenses to one another under the terms and conditions of the merger agreement;

 

•

there may be negative reactions from the financial markets due to the fact that current prices of ONEOK common stock and ONEOK Partners common units may reflect a market assumption that the merger will be completed; and

 

•

the attention of management will have been diverted to the merger rather than their own operations and pursuit of other opportunities that could have been beneficial to their respective businesses.

Because the exchange ratio is fixed and because the market price of ONEOK common stock will fluctuate prior to the completion of the merger, ONEOK Partners common unitholders cannot be sure of the market value of the ONEOK common stock they will receive as merger consideration relative to the value of ONEOK Partners common units they exchange.

The market value of the consideration that ONEOK Partners common unitholders will receive in the merger will depend on the trading price of ONEOK common stock at the closing of the merger. The exchange ratio that

 

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determines the number of shares of ONEOK common stock that ONEOK Partners common unitholders will receive in the merger is fixed at 0.985 of a share of ONEOK common stock for each ONEOK Partners common unit. This means that there is no mechanism contained in the merger agreement that would adjust the number of shares of ONEOK common stock that ONEOK Partners common unitholders will receive based on any decreases or increases in the trading price of ONEOK common stock. Stock or unit price changes may result from a variety of factors (many of which are beyond ONEOK’s and ONEOK Partners’ control), including:

 

•

changes in ONEOK’s or ONEOK Partners’ business, operations and prospects;

 

•

changes in market assessments of ONEOK’s or ONEOK Partners’ business, operations and prospects;

 

•

changes in market assessments of the likelihood that the merger will be completed;

 

•

interest rates, commodity prices, general market, industry and economic conditions and other factors generally affecting the price of ONEOK common stock or ONEOK Partners common units; and

 

•

federal, state and local legislation, governmental regulation and legal developments in the businesses in which ONEOK and ONEOK Partners operate.

If the price of ONEOK common stock at the closing of the merger is less than the price of ONEOK common stock on the date that the merger agreement was signed, then the market value of the merger consideration will be less than contemplated at the time the merger agreement was signed.

If the merger is approved by ONEOK Partners unitholders, the date that common unitholders will receive the merger consideration is dependent on the completion date of the merger, which is uncertain.

As described in this joint proxy statement/prospectus, completing the proposed merger is subject to several conditions, not all of which are controllable by ONEOK or ONEOK Partners. Accordingly, if the proposed merger is approved by ONEOK Partners unitholders, the date that common unitholders will receive merger consideration depends on the completion date of the merger, which is uncertain and subject to several other closing conditions.

ONEOK and ONEOK Partners may incur substantial transaction-related costs in connection with the merger.

ONEOK and ONEOK Partners expect to incur substantial expenses in connection with completing the merger, including fees paid to legal, financial and accounting advisors, filing fees, proxy solicitation costs and printing costs. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.

ONEOK is subject to provisions that limit its ability to pursue alternatives to the merger and could discourage a potential competing acquirer from making a favorable alternative transaction proposal.

Under the merger agreement, ONEOK is restricted from pursuing alternative proposals. Under certain “no solicitation” covenants, ONEOK has agreed that it will not, and will cause its subsidiaries and use reasonable best efforts to cause its representatives not to, directly or indirectly, except as permitted by the merger agreement:

 

•

solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquiries or any proposals that constitute the submission of an alternative proposal; or

 

•

enter into any alternative acquisition agreement with respect to any alternative proposal (other than a confidentiality agreement containing customary provisions).

ONEOK has agreed that it will, and will cause its subsidiaries and use reasonable best efforts to cause its representatives to, cease and cause to be terminated any discussions or negotiations with any persons conducted prior to the execution of the merger agreement with respect to an alternative proposal and immediately prohibit any access by any person to confidential information relating to a possible alternative proposal.

 

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Under the merger agreement, in the event of a potential ONEOK Partners adverse recommendation change or a potential ONEOK adverse recommendation change (as defined under “The Merger Agreement—ONEOK Partners GP Recommendation and ONEOK Partners Adverse Recommendation Change” and under “The Merger Agreement—ONEOK Recommendation and ONEOK Adverse Recommendation Change”), each party must provide the other party with three days’ notice to allow the other party to propose an adjustment to the terms and conditions of the merger agreement.

These provisions could discourage a third party that may have an interest in acquiring all or a significant part of ONEOK from considering or proposing that acquisition. See “The Merger Agreement—No Solicitation by ONEOK of Alternative Proposals,” “The Merger Agreement—ONEOK Recommendation and ONEOK Adverse Recommendation Change” and “The Merger Agreement—ONEOK Partners GP Recommendation and ONEOK Partners Adverse Recommendation Change.”

ONEOK is subject to provisions under the merger agreement that, in specified circumstances, could require ONEOK to execute an amendment to the ONEOK Partners partnership agreement providing for the reduction in incentive distributions payable by ONEOK Partners to ONEOK, as the indirect holder of ONEOK Partners’ incentive distribution rights (IDRs), up to $300 million, or require ONEOK to make a payment in respect of ONEOK Partners’ expenses up to $20.0 million.

If the merger agreement is terminated by ONEOK or ONEOK Partners in certain situations, including by ONEOK in order to enter into a superior proposal, ONEOK will be required to execute an amendment to the ONEOK Partners partnership agreement providing for the reduction in incentive distributions payable by ONEOK Partners to ONEOK, as the indirect holder of ONEOK Partners’ IDRs, up to $300 million. Alternatively, if the merger agreement is terminated under specified circumstances, ONEOK may be required to make a payment of up to $20 million in respect of ONEOK Partners’ expenses. See “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Effect of Termination; Termination Fees.” If such termination fee or expenses are payable, the payment of such termination fee or expenses could have material and adverse consequences to the financial condition and operations of ONEOK.

ONEOK Partners is subject to provisions under the merger agreement that, in specified circumstances, could require ONEOK Partners to pay a fee to ONEOK of up to $300 million or require ONEOK Partners to make a payment in respect of ONEOK’s expenses up to $10.0 million.

If the merger agreement is terminated by the ONEOK Partners conflicts committee in response to an intervening event or by ONEOK in response to a ONEOK Partners change in recommendation, ONEOK Partners will be required to pay a fee to ONEOK in the amount up to $300 million. Alternatively, if the merger agreement is terminated under specified circumstances, ONEOK Partners may be required to make a payment of up to $10 million in respect of ONEOK’s expenses. See “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Effect of Termination; Termination Fees.” If such termination fee or expenses are payable, the payment of such termination fee or expenses could have material and adverse consequences to the financial condition and operations of ONEOK Partners.

Certain executive officers and directors of ONEOK Partners GP and ONEOK have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK Partners common unitholders or ONEOK shareholders, respectively, which could have influenced their decision to support or approve the merger.

Certain executive officers and directors of ONEOK Partners GP own equity interests in ONEOK, receive fees and other compensation from ONEOK, and will have rights to ongoing indemnification and insurance coverage by the surviving company that give them interests in the merger that may be different from, or be in addition to, interests of a ONEOK Partners unaffiliated unitholder.

 

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Additionally, certain executive officers and directors of ONEOK beneficially own ONEOK Partners common units and will receive the applicable merger consideration upon completion of the merger, receive fees and other compensation from ONEOK, and are entitled to indemnification arrangements with ONEOK that give them interests in the merger that may be different from, or be in addition to, interests a holder of ONEOK common stock may have as a ONEOK shareholder.

These different interests are described in “The Merger—Interests of Certain Persons in the Merger.”

Financial projections by ONEOK and ONEOK Partners may not prove to be reflective of actual future results.

In connection with the merger, ONEOK and ONEOK Partners prepared and considered, among other things, internal financial forecasts for ONEOK and ONEOK Partners, respectively. These forecasts speak only as of the date made and will not be updated. These financial projections were not provided with a view to public disclosure, are subject to significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all or within projected timeframes. In addition, the failure of businesses to achieve projected results could have a material adverse effect on ONEOK’s share price, financial position and ability to maintain or increase its dividends following the merger.

The unaudited pro forma financial statements included in this joint proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined entity’s financial condition or results of operations following the merger.

The unaudited pro forma financial statements contained in this joint proxy statement/prospectus are presented for illustrative purposes only, are based on various adjustments, assumptions and preliminary estimates and may not be an indication of the financial condition or results of operations of the combined entity following the merger for several reasons. The actual financial condition and results of operations of the combined entity following the merger may not be consistent with, or evident from, these pro forma financial statements. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the financial condition or results of operations of the combined entity following the merger. Any potential decline in the financial condition or results of operations of the combined entity may cause significant variations in the price of ONEOK common stock after completion of the merger. See “Unaudited Pro Forma Condensed Consolidated Financial Statements.”

Shares of ONEOK common stock to be received by ONEOK Partners common unitholders as a result of the merger have different rights from ONEOK Partners common units.

Following completion of the merger, ONEOK Partners common unitholders will no longer hold ONEOK Partners common units, but will instead be ONEOK shareholders. There are important differences between the rights of ONEOK Partners common unitholders and the rights of ONEOK shareholders. Ownership interests in a limited partnership are fundamentally different from ownership interests in a corporation. ONEOK Partners common unitholders will own ONEOK common stock following the completion of the merger, and their rights associated with the ONEOK common stock will be governed by ONEOK’s organizational documents and the OGCA, which differ in a number of respects from the ONEOK Partners partnership agreement and the Delaware LP Act. See “Comparison of Rights of ONEOK Shareholders and ONEOK Partners Common Unitholders.”

Tax Risks Related to the Merger and the Ownership of ONEOK Common Stock Received in the Merger

In addition to reading the following risk factors, you are urged to read “United States Federal Income Tax Consequences” for a more complete discussion of the expected U.S. federal income tax consequences of the merger and owning and disposing of ONEOK common stock received in the merger.

 

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The merger should be a taxable transaction and, in such case, the resulting tax liability of a ONEOK Partners common unitholder, if any, will depend on the unitholder’s particular situation. The tax liability of a ONEOK Partners common unitholder as a result of the merger could be more than expected.

ONEOK Partners common unitholders will receive ONEOK common stock and cash in lieu of fractional shares, if any, as the merger consideration. Although ONEOK Partners’ common unitholders will receive no cash consideration other than any cash received in lieu of fractional shares, if any, the merger should be treated as a taxable sale by ONEOK Partners common unitholders for U.S. federal income tax purposes. In such case, as a result of the merger, a ONEOK Partners common unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the difference between such unitholder’s amount realized and the unitholder’s adjusted tax basis in the ONEOK Partners common units. The amount of gain or loss recognized by each ONEOK Partners common unitholder in the merger will vary depending on each unitholder’s particular situation, including the value of the shares of ONEOK common stock and the amount of cash in lieu of fractional shares, if any, received by each unitholder in the merger, the adjusted tax basis of the ONEOK Partners common units exchanged by each unitholder in the merger, and the amount of any suspended passive losses that may be available to a particular unitholder to offset a portion of the gain recognized by the unitholder.

Because the value of any ONEOK common stock received in the merger will not be known until the effective time of the merger, a ONEOK Partners common unitholder will not be able to determine its amount realized, and therefore its taxable gain or loss, until such time. In addition, because prior distributions in excess of a ONEOK Partners common unitholder’s allocable share of ONEOK Partners’ net taxable income decrease the unitholder’s tax basis in its common units, the amount, if any, of the prior excess distributions with respect to such ONEOK Partners common units will, in effect, become taxable income to a unitholder if the aggregate value of the consideration received in the merger is greater than the unitholder’s adjusted tax basis in its common units, even if the aggregate value of the consideration received in the merger is less than the unitholder’s original cost basis in its common units. Furthermore, a portion of this gain or loss, which could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to “unrealized receivables,” including depreciation recapture, or to “inventory items” owned by ONEOK Partners and its subsidiaries.

For a more complete discussion of U.S. federal income tax consequences of the merger, see “United States Federal Income Tax Consequences.”

The U.S. federal income tax treatment of owning and disposing of ONEOK common stock received in the merger will be different than the U.S. federal income tax treatment of owning and disposing of ONEOK Partners common units.

ONEOK Partners is classified as a partnership for U.S. federal income tax purposes and, generally, is not subject to entity-level U.S. federal income taxes. Instead, each ONEOK Partners common unitholder is required to take into account its respective share of ONEOK Partners’ items of income, gain, loss and deduction in computing its federal income tax liability, even if no cash distributions are made by ONEOK Partners to the unitholder. A pro rata distribution of cash by ONEOK Partners to a ONEOK Partners common unitholder who is a U.S. Holder is generally not taxable for U.S. federal income tax purposes unless the amount of cash distributed is in excess of the unitholder’s adjusted tax basis in its ONEOK Partners common units.

In contrast, ONEOK is classified as a corporation for U.S. federal income tax purposes and is subject to U.S. federal income tax on its taxable income. A distribution of cash by ONEOK to a shareholder who is a U.S. Holder will generally be included in such shareholder’s income as ordinary dividend income to the extent of ONEOK’s current or accumulated “earnings and profits,” as determined under U.S. federal income tax principles. A portion of the cash distributed to ONEOK shareholders by ONEOK after the merger may exceed ONEOK’s current and accumulated earnings and profits. Cash distributions to a ONEOK shareholder who is a U.S. Holder in excess of ONEOK’s current and accumulated earnings and profits will be treated as a non-taxable return of capital, reducing the adjusted tax basis in the holder’s ONEOK common stock and, to the extent the

 

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cash distribution exceeds the holder’s adjusted tax basis, as capital gain from the sale or exchange of such ONEOK common stock. See “United States Federal Income Tax Consequences.”

ONEOK’s future tax liability may be greater than expected if it does not generate NOLs sufficient to offset taxable income or if tax authorities challenge certain of its tax positions.

ONEOK expects to generate deductions and NOL carryforwards that it can use to offset taxable income. As a result, ONEOK does not expect to pay meaningful U.S. federal income tax through at least 2021. This estimate is based upon assumptions ONEOK has made regarding, among other things, income, capital expenditures and net working capital. Further, the Internal Revenue Service (the “IRS”) or other tax authorities could challenge one or more tax positions ONEOK takes, such as the classification of assets under the income tax depreciation rules, the characterization of expenses for income tax purposes, and the tax classification of the merger. Further, any change in law may affect ONEOK’s tax position. While ONEOK expects that its deductions and NOL carryforwards will be available to it as a future benefit, in the event that they are not generated as expected, are successfully challenged by the IRS (in a tax audit or otherwise) or are subject to future limitations as described below, ONEOK’s ability to realize these benefits may be limited.

ONEOK’s ability to use NOLs to offset future income may be limited.

ONEOK’s ability to use any NOLs generated by it could be substantially limited if ONEOK were to experience an “ownership change” as defined under Section 382 of the Code. In general, an “ownership change” would occur if ONEOK’s “5-percent shareholders,” as defined under Section 382 of the Code, including certain groups of persons treated as “5-percent shareholders,” collectively increased their ownership in ONEOK by more than 50 percentage points over a rolling three-year period. An ownership change can occur as a result of a public offering of ONEOK’s common stock, as well as through secondary market purchases of our common stock and certain types of reorganization transactions. A corporation that experiences an ownership change will generally be subject to an annual limitation on the use of its pre-ownership change NOLs (and certain other losses and/or credits) equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurs. Such a limitation could, for any given year, have the effect of increasing the amount of ONEOK’S U.S. federal income tax liability, which would negatively impact the amount of after-tax cash available for distribution to holders of ONEOK common stock and ONEOK’s financial condition.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained and incorporated in this joint proxy statement/prospectus are forward-looking statements as defined under federal securities laws. The forward-looking statements relate to ONEOK’s and/or ONEOK Partners’ anticipated financial performance (including projected operating income, net income, capital expenditures, cash flow and projected levels of dividends and distributions), liquidity, management’s plans and objectives for ONEOK’s and/or ONEOK Partners’ future growth projects and other future operations (including plans to construct additional natural gas and natural gas liquids pipelines and processing facilities and related cost estimates), ONEOK’s and/or ONEOK Partners’ business prospects, the outcome of regulatory and legal proceedings, market conditions and other matters. ONEOK and ONEOK Partners make these forward-looking statements in reliance on the safe harbor protections provided under federal securities legislation and other applicable laws. The following discussion is intended to identify important factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Forward-looking statements include the items identified in the preceding paragraph, the information concerning possible or assumed future results of ONEOK’s and/or ONEOK Partners’ operations and other statements contained or incorporated in this joint proxy statement/prospectus identified by words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled” and other words and terms of similar meaning.

One should not place undue reliance on forward-looking statements. Known and unknown risks, uncertainties and other factors may cause ONEOK’s and/or ONEOK Partners’ actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Those factors may affect ONEOK’s and/or ONEOK Partners’ operations, markets, products, services and prices. In addition to any assumptions and other factors referred to specifically in connection with the forward-looking statements, factors that could cause ONEOK’s and/or ONEOK Partners’ actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following:

 

•

the ability to obtain the requisite approvals from ONEOK’s shareholders or ONEOK Partners’ unitholders relating to the merger;

 

•

the risk that ONEOK and/or ONEOK Partners may be unable to obtain governmental and regulatory approvals required for the merger, if any, or required governmental and regulatory approvals, if any, may delay the transaction or result in the imposition of conditions that could cause the parties to abandon the merger;

 

•

the risk that a condition to closing of the merger may not be satisfied;

 

•

the timing to complete the merger;

 

•

the risk that cost savings, tax benefits and any other synergies from the merger may not be fully realized or may take longer to realize than expected;

 

•

disruption from the merger may make it more difficult to maintain relationships with customers, employees or suppliers;

 

•

the possible diversion of management time on merger-related issues;

 

•

the impact and outcome of pending and future litigation, including litigation, if any, relating to the merger;

 

•

the effects of weather and other natural phenomena, including climate change, on ONEOK’s and/or ONEOK Partners’ operations, demand for ONEOK’s and/or ONEOK Partners’ services and energy prices;

 

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•

competition from other United States and foreign energy suppliers and transporters, as well as alternative forms of energy, including, but not limited to, solar power, wind power, geothermal energy and biofuels such as ethanol and biodiesel;

 

•

the capital intensive nature of ONEOK’s and ONEOK Partners’ businesses;

 

•

the profitability of assets or businesses acquired or constructed by ONEOK and/or ONEOK Partners;

 

•

ONEOK’s and/or ONEOK Partners’ ability to make cost-saving changes in operations;

 

•

risks of marketing, trading and hedging activities, including the risks of changes in energy prices or the financial condition of ONEOK’s and/or ONEOK Partners’ counterparties;

 

•

the uncertainty of estimates, including accruals and costs of environmental remediation;

 

•

the timing and extent of changes in energy commodity prices;

 

•

the effects of changes in governmental policies and regulatory actions, including changes with respect to income and other taxes, pipeline safety, environmental compliance, climate change initiatives and authorized rates of recovery of natural gas and natural gas transportation costs;

 

•

the impact on drilling and production by factors beyond ONEOK’s and ONEOK Partners’ control, including the demand for natural gas and crude oil; producers’ desire and ability to obtain necessary permits; reserve performance; and capacity constraints on the pipelines that transport crude oil, natural gas and NGLs from producing areas and ONEOK’s and ONEOK Partners’ facilities;

 

•

difficulties or delays experienced by trucks, railroads or pipelines in delivering products to or from ONEOK’s and/or ONEOK Partners’ terminals or pipelines;

 

•

changes in demand for the use of natural gas, NGLs and crude oil because of market conditions caused by concerns about climate change;

 

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conflicts of interest between ONEOK, ONEOK Partners GP, ONEOK Partners, and related parties of ONEOK, ONEOK Partners GP, and ONEOK Partners;

 

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the impact of unforeseen changes in interest rates, equity markets, inflation rates, economic recession and other external factors over which ONEOK and ONEOK Partners have no control, including the effect on pension and postretirement expense and funding resulting from changes in equity and bond market returns;

 

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ONEOK’s and/or ONEOK Partners’ indebtedness could make ONEOK and/or ONEOK Partners’ vulnerable to general adverse economic and industry conditions, limit ONEOK’s and/or ONEOK Partners’ ability to borrow additional funds and/or place ONEOK and/or ONEOK Partners at competitive disadvantages compared with their competitors that have less debt, or have other adverse consequences;

 

•

actions by rating agencies concerning the credit ratings of ONEOK and/or ONEOK Partners;

 

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the results of administrative proceedings and litigation, regulatory actions, rule changes and receipt of expected clearances involving any local, state or federal regulatory body, including the FERC, the National Transportation Safety Board, the United States Department of Transportation Pipeline and Hazardous Materials Safety Administration, the United States Environmental Protection Agency and the U.S. Commodity Futures Trading Commission;

 

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ONEOK’s and/or ONEOK Partners’ ability to access capital at competitive rates or on terms acceptable to ONEOK and/or ONEOK Partners;

 

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risks associated with adequate supply to ONEOK’s and/or ONEOK Partners’ gathering, processing, fractionation and pipeline facilities, including production declines that outpace new drilling or extended periods of ethane rejection;

 

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•

the risk that material weaknesses or significant deficiencies in ONEOK’s and/or ONEOK Partners’ internal controls over financial reporting could emerge or that minor problems could become significant;

 

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the impact and outcome of pending and future litigation;

 

•

the ability to market pipeline capacity on favorable terms, including the effects of:

 

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future demand for and prices of natural gas, NGLs and crude oil;

 

•

competitive conditions in the overall energy market;

 

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availability of supplies of Canadian and United States natural gas and crude oil; and

 

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availability of additional storage capacity;

 

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performance of contractual obligations by ONEOK’s and/or ONEOK Partners’ customers, service providers, contractors and shippers;

 

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the timely receipt of approval by applicable governmental entities for construction and operation of ONEOK’s and/or ONEOK Partners’ pipeline and other projects and required regulatory clearances;

 

•

ONEOK’s and/or ONEOK Partners’ ability to acquire all necessary permits, consents or other approvals in a timely manner, to promptly obtain all necessary materials and supplies required for construction, and to construct gathering, processing, storage, fractionation and transportation facilities without labor or contractor problems;

 

•

the mechanical integrity of facilities operated;

 

•

demand for ONEOK’s and/or ONEOK Partners’ services in the proximity of ONEOK’s and/or ONEOK Partners’ facilities;

 

•

ONEOK’s and/or ONEOK Partners’ ability to control operating costs;

 

•

acts of nature, sabotage, terrorism or other similar acts that cause damage to ONEOK’s and/or ONEOK Partners’ facilities or ONEOK’s and/or ONEOK Partners’ suppliers’ or shippers’ facilities;

 

•

economic climate and growth in the geographic areas in which ONEOK and ONEOK Partners do business;

 

•

the risk of a prolonged slowdown in growth or decline in the United States or international economies, including liquidity risks in United States or foreign credit markets;

 

•

the impact of recently issued and future accounting updates and other changes in accounting policies;

 

•

the possibility of future terrorist attacks or the possibility or occurrence of an outbreak of, or changes in, hostilities or changes in the political conditions in the Middle East and elsewhere;

 

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the risk of increased costs for insurance premiums, security or other items as a consequence of terrorist attacks;

 

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risks associated with pending or possible acquisitions and dispositions, including ONEOK’s and/or ONEOK Partners’ ability to finance or integrate any such acquisitions and any regulatory delay or conditions imposed by regulatory bodies in connection with any such acquisitions and dispositions;

 

•

the impact of uncontracted capacity in ONEOK Partners’ assets being greater or less than expected;

 

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the ability to recover operating costs and amounts equivalent to income taxes, costs of property, plant and equipment and regulatory assets in ONEOK Partners’ state and FERC-regulated rates;

 

•

the composition and quality of the natural gas and NGLs supplied to ONEOK Partners’ gathering system and processed in ONEOK Partners’ plants and transported on ONEOK Partners’ pipelines;

 

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•

the efficiency of ONEOK Partners’ plants in processing natural gas and extracting and fractionating NGLs;

 

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the impact of potential impairment charges;

 

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the risk inherent in the use of information systems in ONEOK’s and ONEOK Partners’ respective businesses, implementation of new software and hardware, and the impact on the timeliness of information for financial reporting;

 

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ONEOK’s ability to control construction costs and completion schedules of ONEOK’s and/or ONEOK Partners’ pipelines and other projects; and

 

•

the risk factors listed in the reports ONEOK and ONEOK Partners have filed and may file with the SEC, which are incorporated by reference.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of ONEOK’s and/or ONEOK Partners’ forward-looking statements. Other factors could also have material adverse effects on ONEOK’s and/or ONEOK Partners’ future results. These and other risks are described in greater detail in “Risk Factors” in this joint proxy statement/prospectus and in ONEOK’s and ONEOK Partners’ other filings made with the SEC, which are available via the SEC’s website at www.sec.gov, ONEOK’s website at www.oneok.com, and ONEOK Partners’ website at www.oneokpartners.com. All forward-looking statements attributable to ONEOK and/or ONEOK Partners or persons acting on their behalf are expressly qualified in their entirety by these factors. Any such forward-looking statement speaks only as of the date on which such statement is made, and other than as required under securities laws, neither ONEOK nor ONEOK Partners undertakes any obligation to update publicly any forward-looking statement whether as a result of new information, subsequent events or change in circumstances, expectations or otherwise.

 

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THE PARTIES

ONEOK, Inc.

ONEOK is a corporation incorporated under the laws of the state of Oklahoma, and ONEOK’s common stock is listed on the NYSE under the trading symbol “OKE.” ONEOK Partners GP, a wholly-owned subsidiary of ONEOK is the sole general partner of ONEOK Partners. As of March 3, 2017, ONEOK owned 41.2% of ONEOK Partners, one of the largest publicly traded master limited partnerships. ONEOK’s goal is to provide management and resources to ONEOK Partners, enabling it to execute its growth strategies and allowing ONEOK to grow its dividend.

ONEOK’s principal executive offices are located at 100 West Fifth Street, Tulsa, Oklahoma 74103 and its telephone number is (918) 588-7000.

ONEOK Partners, L.P.

ONEOK Partners is a publicly traded master limited partnership, organized under the laws of the state of Delaware, that was formed in 1993. ONEOK Partners’ common units are listed on the NYSE under the trading symbol “OKS.” ONEOK Partners is one of the largest publicly traded master limited partnerships and a leader in the gathering, processing, storage and transportation of natural gas in the United States. In addition, ONEOK Partners owns one of the nation’s premier natural gas liquids systems, connecting NGL supply in the Mid-Continent, Permian and Rocky Mountain regions with key market centers. ONEOK Partners applies its core capabilities of gathering, processing, fractionating, transporting, storing and marketing natural gas and NGLs through the rebundling of services across the value chains through vertical integration in an effort to provide ONEOK Partners’ customers with premium services at lower costs.

ONEOK Partners’ principal executive offices are located at 100 West Fifth Street, Tulsa, Oklahoma 74103 and its telephone number is (918) 588-7000.

Merger Sub

Merger Sub, a wholly owned subsidiary of ONEOK, is a Delaware limited liability company formed on January 31, 2017, for the purpose of effecting the merger. Upon completion of the merger, Merger Sub will merge with and into ONEOK Partners, with ONEOK Partners continuing as the surviving entity and a wholly owned subsidiary of ONEOK. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement.

Relationship Between the Parties

ONEOK does not directly own any midstream operating assets; its main source of future revenue therefore is from its general and limited partner interests in ONEOK Partners. Substantially all of ONEOK’s cash flows are generated from the distributions ONEOK receives from ONEOK Partners. At March 3, 2017, ONEOK’s interests in ONEOK Partners consisted of the following:

 

•

a 2% general partner interest, which ONEOK holds through its 100% ownership interest in ONEOK Partners GP; and

 

•

114,332,833 of the 285,826,232 outstanding ONEOK Partners common units, assuming conversion of the 72,988,252 Class B units held by ONEOK to common units (approximately 40.0%).

The outstanding common units and Class B units (including common units and Class B units held by ONEOK and ONEOK Partners GP) account for 98% of the total ownership interest in ONEOK Partners, with the remaining 2% of the total ownership interest in ONEOK Partners being comprised of the general partner interest in ONEOK Partners. As of the record date, ONEOK and its affiliates beneficially owned approximately

 

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                % of the outstanding ONEOK Partners common units and 100% of the Class B units, which represent, in the aggregate,                 % of the total outstanding common units and Class B units (assuming the conversion of ONEOK’s Class B units to common units). As such, ONEOK’s total direct and indirect ownership interest in ONEOK Partners is                 % (which represents                 % (i.e.,                 % of 98%) in respect of the limited partner interests, plus 2% in respect of the general partner interest).

Certain of the executive officers and directors of ONEOK Partners GP are also executive officers and directors of ONEOK. See “The Merger—Interests of Certain Persons in the Merger—Common Directors and Executive Officers.”

 

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THE MERGER

The following discussion of the merger is qualified in its entirety by reference to the merger agreement between ONEOK and ONEOK Partners. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein.

Overview

On January 31, 2017, ONEOK, Merger Sub, ONEOK Partners and ONEOK Partners GP entered into the merger agreement, pursuant to which ONEOK will acquire all of the outstanding ONEOK Partners common units that ONEOK and its subsidiaries do not already own. Upon the terms and subject to the conditions set forth in the merger agreement, Merger Sub will be merged with and into ONEOK Partners, with ONEOK Partners continuing as the surviving entity and as a subsidiary of ONEOK.

Background of the Merger

As part of their ongoing evaluation of ONEOK’s business, the ONEOK board and senior management regularly review and assess opportunities to increase stockholder value and achieve long-term strategic goals, including, among other things, potential opportunities for acquisitions and business combinations, capital projects, improvements to cost structure, operational improvements, contract optimization, joint ventures, internal restructurings and investments and other strategic alternatives. In this regard, ONEOK management has considered and discussed with the ONEOK board numerous potential strategic alternatives with respect to ONEOK to enhance value for ONEOK’s stockholders. These alternatives included potential acquisitions or business combination transactions with third parties, potential acquisitions or business combination transactions involving ONEOK and ONEOK Partners, potential strategic alternatives regarding ONEOK Partners’ businesses and potential waiver or elimination of incentive distribution rights. In mid-2015, J.P. Morgan began assisting ONEOK management in analyzing ONEOK’s various strategic alternatives.

By mid-October, 2016, ONEOK management concluded that an acquisition by ONEOK of the common units of ONEOK Partners not already owned by ONEOK (the “Potential Transaction”) was likely to be the most favorable of the strategic alternatives considered. At a regularly scheduled meeting of the ONEOK board held on October 19, 2016, ONEOK management again reviewed with the ONEOK board its analysis of various alternatives that had been considered, focusing in particular on the acquisition by ONEOK of the common units of ONEOK Partners not already owned by ONEOK. The ONEOK board directed ONEOK management to conduct further analysis regarding such a transaction, including the potential benefits of, and strategic alternatives to, such a transaction and report to the ONEOK board at its regularly scheduled November meeting.

On November 8, 2016, at a regular meeting of the ONEOK board, ONEOK management and the ONEOK board discussed ONEOK management’s analysis regarding the potential benefits of, and strategic alternatives to, the Potential Transaction. The ONEOK board discussed the rationale for the Potential Transaction, the further analysis that would be required, and the anticipated next steps, timing and processes, including those involving the conflicts committee (the “ONEOK Partners conflicts committee”), a standing committee of the board of directors of ONEOK Partners GP, L.L.C. (the “ONEOK Partners board”), that would be necessary or appropriate in connection with the Potential Transaction. The ONEOK board also discussed potential issues that could arise when a director has an investment in a counterparty to a transaction with ONEOK, including the possibility that such director would need to recuse himself or herself from the vote to approve such transaction. The ONEOK board requested additional information from ONEOK management, including information regarding the potential strategic benefits of ONEOK becoming an operating company versus a general partner holding company.

On December 13, 2016, at a special telephonic meeting of the ONEOK board, members of ONEOK management discussed further with the ONEOK board the Potential Transaction, including potential strategic

 

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benefits of ONEOK becoming an operating company, expected market receptivity to the Potential Transaction, and the timing of any such transaction, as well as other potential strategic alternatives available to ONEOK. ONEOK management noted that before seeking authorization from the ONEOK board to make a proposal to the ONEOK Partners conflicts committee, ONEOK management would want to review the Potential Transaction with the credit rating agencies and obtain comfort that ONEOK likely would be rated investment grade following such a transaction. The ONEOK board determined that ONEOK management should continue to review and analyze a Potential Transaction, including reviewing such a transaction with the ratings agencies to determine the effect on the credit ratings of ONEOK as a result of the transaction. The ONEOK board also determined that ONEOK management should inform the ONEOK Partners board that the ONEOK board was considering authorizing ONEOK to make a proposal to acquire the common units of ONEOK Partners not already owned by ONEOK, and that ONEOK management should ask the ONEOK Partners board to authorize the ONEOK Partners conflicts committee to select and engage independent legal and financial advisors to evaluate and negotiate on behalf of ONEOK Partners any proposal that ONEOK might make.

On December 20, 2016, the ONEOK Partners board held a special telephonic meeting. ONEOK management informed the ONEOK Partners board that, although no decision had been made, the ONEOK board was considering whether to authorize ONEOK to make a proposal to acquire the common units of ONEOK Partners not already owned by ONEOK. ONEOK management and the ONEOK Partners board discussed certain process, timing and disclosure considerations regarding any proposal that ONEOK might make. ONEOK management requested that the ONEOK Partners board authorize the ONEOK Partners conflicts committee to take steps to prepare to evaluate and respond to a proposal, if made, including selecting and engaging independent legal and financial advisors. The ONEOK Partners board authorized the ONEOK Partners conflicts committee to (i) review and evaluate the terms and conditions of any proposal that ONEOK might make to acquire the common units of ONEOK Partners not already owned by ONEOK and to determine the fairness and reasonableness of any such proposed transaction to ONEOK Partners, (ii) negotiate with ONEOK the terms and conditions of any such proposed transaction, (iii) determine whether to approve any such proposed transaction by “Special Approval,” as such term is defined by the ONEOK Partners limited partnership agreement, (iv) make any recommendation to the holders of ONEOK Partners common units, excluding ONEOK, ONEOK Partners GP and their affiliates (the “unaffiliated unitholders”) regarding what action, if any, should be taken by the unaffiliated unitholders with respect to any such proposed transaction and (v) select and engage independent legal and financial advisors to assist the ONEOK Partners conflicts committee. After the conclusion of the ONEOK Partners board meeting, the ONEOK Partners conflicts committee convened a meeting to begin to discuss the process for selecting independent legal counsel and an independent financial advisor to advise the conflicts committee in connection with its review and evaluation of any proposal from ONEOK. Certain members of ONEOK management participated in the initial portion of the meeting. At the request of the ONEOK Partners conflicts committee, ONEOK management provided the ONEOK Partners conflicts committee with information regarding the relationships of each of ONEOK and ONEOK Partners with various law firms and investment banking firms in order to assist the committee in its selection of independent legal counsel and an independent financial advisor. The ONEOK Partners conflicts committee then continued the meeting without members of ONEOK management present to continue to discuss its selection of independent legal counsel and an independent financial advisor for the Potential Transaction.

On December 27, 2016, the ONEOK Partners conflicts committee held a telephonic meeting without members of management present in order to discuss the various law firm options and make its selection of independent legal counsel. The ONEOK Partners conflicts committee subsequently engaged Andrews Kurth Kenyon LLP (“Andrews Kurth”) as its independent legal counsel.

On January 3, 2017, the ONEOK Partners conflicts committee, representatives of Andrews Kurth and ONEOK management discussed the information, including financial projections, to be provided by ONEOK and ONEOK Partners GP management to the ONEOK Partners conflicts committee and its advisors. At the request of the ONEOK Partners conflicts committee, ONEOK management discussed the names of financial advisors that are widely recognized as experts in the energy master limited partnerships (“MLPs”) space, as well as the

 

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relationships of each of ONEOK and ONEOK Partners with such firms. The ONEOK Partners conflicts committee then continued the meeting without members of ONEOK management present to continue to discuss the selection of an independent financial advisor. After discussion, the ONEOK Partners conflicts committee authorized Andrews Kurth to contact four financial advisory firms and to request from each certain information, including information regarding the qualifications of such firm to represent a conflicts committee of a publicly traded partnership in a significant related party transaction (which information was requested on a “no names” basis).

On January 6, 2017, the ONEOK Partners conflicts committee held a telephonic meeting, at which representatives of Andrews Kurth were present, in order to discuss the four financial advisory firms and to attempt to narrow the potential financial advisors based on the information the ONEOK Partners conflicts committee had received since its last meeting. The ONEOK Partners conflicts committee instructed Andrews Kurth to contact two of the four firms and ask that they attend a meeting of the ONEOK Partners conflicts committee, to be held on January 9, 2017, to discuss their representative experiences, the structure, proposed deal team and other qualifications. Attendance at such meeting was subject to the firms providing, and Andrews Kurth and the ONEOK Partners conflicts committee reviewing, information regarding current and recent relationships and engagements between each of the firms and ONEOK Partners, ONEOK and their respective affiliates. On or about January 7, 2017, each of the two firms disclosed to the ONEOK Partners conflicts committee the nature of its relationship and engagements for ONEOK Partners, ONEOK and their affiliates since January 1, 2014 and the amount and nature of the fees it received from such parties. Subsequently, on January 9, 2017, the ONEOK Partners conflicts committee held an in-person meeting, at which representatives of Andrews Kurth were present, to interview the two potential financial advisors. Before meeting with potential financial advisors, Andrews Kurth reviewed with the ONEOK Partners conflicts committee their fiduciary duties with respect to a potential transaction with ONEOK. Following such interviews, the ONEOK Partners conflicts committee resolved to engage Barclays as its financial advisor after determining that Barclays, based on the interview of Barclays and Barclays’ reputation, experience and familiarity with ONEOK Partners and its businesses, had the professional ability and competence to provide financial advisory services (including the delivery of a fairness opinion) to the ONEOK Partners conflicts committee in connection with the Potential Transaction. The nature of Barclays’ relationship and engagements for ONEOK Partners, ONEOK and their affiliates since January 1, 2014, as well as fees for such engagements, were discussed at various times from January 9 to January 18, 2017 by the ONEOK Partners conflicts committee with ONEOK Partners GP management and Andrews Kurth. The engagement letter confirming the terms of Barclays’ engagement was entered into on January 30, 2017.

From January 11 to 29, 2017, ONEOK and ONEOK Partners GP management provided Barclays with financial and other due diligence information, including five-year projections for ONEOK, ONEOK Partners and the pro forma combined company that were based on the projections approved by the ONEOK board and the ONEOK Partners board in connection with the most-recent strategic review and financial plan, information with respect to existing capital projects and tax information. See “—Unaudited Projected Financial Information.”

ONEOK management had confidential meetings with the rating agencies in mid-January 2017 to determine the likely impact of the Potential Transaction on the credit ratings of ONEOK as a result of the transaction. Later in January 2017, the rating agencies advised ONEOK management of their view that following the consummation of the Potential Transaction, they anticipated ONEOK would have an investment grade credit rating.

On January 16, 2017, ONEOK and ONEOK Partners GP management met with representatives of Barclays and J.P. Morgan, which was acting as lead financial advisor to ONEOK, to provide additional due diligence information, including with respect to the assets, business plan, growth projects and outlook for ONEOK and ONEOK Partners. During this meeting, the parties discussed in detail various business, operating and financial diligence matters, including key assumptions underlying management’s projections. In the days following this meeting, ONEOK and ONEOK Partners GP management provided representatives of Barclays with additional requested due diligence information, and ONEOK and ONEOK Partners GP management and representatives of Barclays held several follow-up due diligence calls. Additionally, the ONEOK Partners conflicts committee held

 

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several meetings from January 18 to 20, 2017, with representatives of Barclays and Andrews Kurth present, to review and discuss the business, operating and financial diligence information provided by ONEOK and ONEOK Partners GP management.

On January 24, 2017, the ONEOK board held a special telephonic meeting. Members of ONEOK management and representatives of Skadden, Arps (ONEOK’s outside legal counsel) were also in attendance. ONEOK management discussed the Potential Transaction with the ONEOK board, including expected market receptivity for the Potential Transaction, a range of potential premiums to ONEOK Partners unitholders for consideration, the potential timing of any such transaction and alternatives to the Potential Transaction. ONEOK management also reported to the ONEOK board the results of discussions with the ratings agencies regarding the anticipated effect of the Potential Transaction on the credit ratings of ONEOK. Representatives of Skadden, Arps reviewed with the ONEOK board its fiduciary duties in considering the Potential Transaction. The ONEOK board also discussed the potential interests of certain directors in the transaction by virtue of their ownership of ONEOK Partners common units or their positions as directors of ONEOK Partners and certain provisions of the certificate of incorporation of ONEOK regarding the ability of directors who are in any way interested in or connected to a party to a transaction with ONEOK to vote on the transaction. At the conclusion of the meeting, the ONEOK board authorized ONEOK management to present a non-binding proposal for a Potential Transaction to the ONEOK Partners conflicts committee and to negotiate the terms of a Potential Transaction with the conflicts committee, subject to approval of final terms by the ONEOK board.

Following the meeting of the ONEOK board on January 24, 2017, Terry K. Spencer, President and Chief Executive Officer of ONEOK, sent to Craig F. Strehl, the chairman of the ONEOK Partners conflicts committee, and the other members of the ONEOK Partners conflicts committee, a non-binding proposal for the acquisition by ONEOK of the common units of ONEOK Partners not already owned by ONEOK in a merger where each common unit of ONEOK Partners not owned directly or indirectly by ONEOK would be exchanged for shares of ONEOK common stock at an exchange ratio representing an approximate 14% implied premium to the closing price of the ONEOK Partners common units on the trading day prior to execution of the merger agreement (as of January 24, 2017, such exchange ratio would have been 0.897 of a share of ONEOK common stock per ONEOK Partners common unit). The proposal also stated that if the ONEOK Partners merger was consummated, ONEOK expected to increase the quarterly dividend on the shares of ONEOK common stock to $0.66 per share.

Later that evening, representatives of Skadden, Arps sent a draft merger agreement to Andrews Kurth. The draft merger agreement, among other things, (i) provided that the obligations of ONEOK and ONEOK Partners to consummate the merger would be conditioned on, among other things, the approval of the merger by the affirmative vote of a majority of the outstanding ONEOK Partners common units and Class B Units, voting as a single class, and the receipt of necessary consents under the ONEOK and ONEOK Partners credit facilities, and further that the obligation of ONEOK to consummate the merger would be conditioned on, among other things, the receipt of a tax opinion to the effect that the merger should be treated as a taxable purchase and sale of the common units for tax purposes, (ii) included a “force the vote” provision that would require each of ONEOK and ONEOK Partners to submit the transaction for approval by the ONEOK stockholders and the ONEOK Partners unitholders, respectively, regardless of any change of recommendation by the ONEOK board, the ONEOK Partners board or the ONEOK Partners conflicts committee, (iii) included a “no shop” provision applicable to ONEOK with respect to any alternative transaction that would reasonably be expected to prevent or materially impede, interfere with, hinder or delay the consummation of the ONEOK Partners merger, but did not include a “no shop” provision applicable to ONEOK Partners, and (iv) provided for expense reimbursement fees (subject to a $10 million cap) and termination fees in unspecified amounts payable by each of ONEOK and ONEOK Partners under specified circumstances. The ONEOK Partners expense reimbursement fee would be payable by ONEOK in the event of termination by either ONEOK or ONEOK Partners due to the failure to obtain ONEOK stockholder approval of the issuance of shares of ONEOK common stock in the merger, and the ONEOK expense reimbursement fee would be payable by ONEOK Partners in the event of termination by either ONEOK or ONEOK Partners due to the failure to obtain ONEOK Partners unitholder approval of the merger. The termination fee would be payable by ONEOK in the event of termination by ONEOK due to a change in

 

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recommendation by the ONEOK board or in the event of termination by either ONEOK or ONEOK Partners due to the failure to obtain ONEOK stockholder approval of the issuance of shares of ONEOK common stock in the merger following a change in recommendation by the ONEOK board. The termination fee payable by ONEOK Partners would be payable only in the event of termination by either ONEOK or ONEOK Partners due to the failure to obtain ONEOK Partners unitholder approval of the merger following a change in recommendation by the ONEOK Partners board or the ONEOK Partners conflicts committee.

On January 26, 2017, the ONEOK Partners conflicts committee held an in-person meeting, at which representatives of Barclays and Andrews Kurth were present. The ONEOK Partners conflicts committee and its advisors discussed the non-binding proposal received on the 24th from ONEOK. Barclays updated the Committee as to, among other things, financial projections provided by ONEOK and ONEOK Partners GP management and certain preliminary financial analyses relating to the proposed merger based on the non-binding proposal from ONEOK. The ONEOK Partners conflicts committee and its advisors also discussed the expected tax effects of the proposed merger on the ONEOK Partners unaffiliated common unitholders and other potential benefits and considerations of the proposed merger, such as those described under “—Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger.” Barclays discussed with the ONEOK Partners conflicts committee potential structuring alternatives to the proposed merger and certain preliminary financial benefits and considerations of such potential structuring alternatives. Andrews Kurth provided the ONEOK Partners conflicts committee and Barclays a summary of the draft merger agreement and described certain potential issues for the ONEOK Partners conflicts committee to consider in connection with the draft merger agreement. The ONEOK Partners conflicts committee concluded from the meeting that the proposed merger was an attractive strategic option for ONEOK Partners and its unaffiliated unitholders if an appropriately attractive exchange ratio could be negotiated.

On January 27, 2017, the ONEOK Partners conflicts committee held a telephonic meeting, at which representatives of Barclays and Andrews Kurth were present. Andrews Kurth discussed the updates it had made to the draft merger agreement based on the discussion they had held the previous day with the ONEOK Partners conflicts committee and Barclays. After reviewing the changes to the draft merger agreement, the ONEOK Partners conflicts committee authorized Andrews Kurth to send a revised draft merger agreement to representatives of Skadden, Arps. Barclays updated the ONEOK Partners conflicts committee as to its preliminary financial analysis utilizing the proposed premium and various higher exchange ratios and various dividend growth assumptions with respect to ONEOK common stock. The ONEOK Partners conflicts committee then discussed possible responses to ONEOK management regarding the proposed merger. Following discussion, the ONEOK Partners conflicts committee authorized representatives of Barclays to inform ONEOK management of a counterproposal from the ONEOK Partners conflicts committee that contemplated (i) an exchange ratio of 1.05 shares of ONEOK common stock per ONEOK Partners common unit (representing an approximate 30% implied premium based on January 26, 2017 closing prices), (ii) public guidance from ONEOK management of an immediate dividend increase to $0.72 per share of ONEOK common stock and (iii) public guidance from ONEOK of a 10% dividend growth rate thereafter.

On January 27, 2017, at the direction of the ONEOK Partners conflicts committee, representatives of Barclays communicated such proposal to Mr. Spencer and Mr. Walter S. Hulse III, ONEOK’s Executive Vice President, Strategic Planning and Corporate Affairs.

Also on January 27, 2017, representatives of Andrews Kurth sent a revised draft merger agreement to Skadden, Arps. The revised draft merger agreement, among other things, (i) included a requirement that the merger be approved by a majority of the common units held by the unaffiliated unitholders, (ii) eliminated the “force the vote” provision, (iii) provided that the ONEOK Partners conflicts committee would have the right to the extent necessary to meet its obligations to change its recommendation of the proposed merger with no termination fee payable by ONEOK Partners, although in the event of such a change in recommendation, ONEOK Partners would be required to reimburse up to $10 million of ONEOK’s expenses in connection with the transaction, (iv) provided that a change of recommendation by the ONEOK Partners conflicts committee

 

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would invalidate and rescind the “Special Approval” of the merger agreement and the transactions contemplated thereby, (v) imposed certain additional limitations on the conduct of ONEOK’s business during the period between signing of the merger agreement and closing of the merger, (vi) required ONEOK to reimburse up to $10 million of ONEOK Partners’ expenses in the event that there had been no change of recommendation by the ONEOK board, but the merger agreement was terminated due to the failure to obtain the requisite approvals of the ONEOK Partners unitholders or due to the failure of the merger to close by September 30, 2017, (vii) required ONEOK to pay a termination fee of 1% of ONEOK Partners’ aggregate equity value based on the exchange ratio if (x) the ONEOK stockholders failed to approve the issuance of shares of ONEOK common stock in connection with the merger, (y) the ONEOK board changed its recommendation or (z) ONEOK materially breached the merger agreement, (viii) required ONEOK to pay a termination fee of 4% of ONEOK Partners’ aggregate equity value based on the exchange ratio in certain cases where ONEOK consummated an alternative transaction that was entered into within 12 months of termination, (ix) required ONEOK Partners to reimburse up to $10 million of ONEOK’s expenses in the transaction if ONEOK Partners materially breached the merger agreement and (x) provided that the receipt of a tax opinion would be a mutual closing condition.

On January 28, 2017, Messrs. Spencer and Hulse and Mr. Derek S. Reiners, ONEOK’s Senior Vice President, Chief Financial Officer and Treasurer, communicated to a representative of Barclays a revised ONEOK proposal of an exchange ratio of 0.942, representing a 17% implied premium, based on January 27, 2017 closing prices, a target post-closing quarterly dividend of $0.735 per share of ONEOK common stock, and that ONEOK management would consider communicating a dividend growth rate range of 8 to 10%.

On January 28, 2017, the ONEOK Partners conflicts committee held a telephonic meeting, at which representatives of Barclays and Andrews Kurth were present. The purpose of the meeting was to discuss the counterproposal that ONEOK management had conveyed to representatives from Barclays earlier in the day. Barclays updated the ONEOK Partners conflicts committee regarding the financial projections prepared by ONEOK and ONEOK Partners GP management and certain financial matters and its preliminary financial analyses based on the counterproposal. The ONEOK Partners conflicts committee also discussed the benefits and considerations with respect to the proposed merger, such as those described under “—Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger,” and discussed potential exchange ratios at which the ONEOK Partners conflicts committee might support the proposed merger. Following discussion, the ONEOK Partners conflicts committee authorized representatives of Barclays to inform ONEOK management of a counterproposal that contemplated (i) an exchange ratio of 1.025 shares of ONEOK common stock per ONEOK Partners common unit (representing an approximate 27.3% implied premium based on January 27, 2017 closing prices), (ii) public guidance from ONEOK management of an immediate dividend increase to $0.735 per share of ONEOK common stock and (iii) public guidance from ONEOK of a 8-10% dividend growth rate thereafter.

Later in the day on January 28th, at the direction of the ONEOK Partners conflicts committee, a representative of Barclays communicated such proposal to Messrs. Spencer and Hulse.

Later in the day on January 28th, Mr. Craig F. Strehl, chairman of the ONEOK Partners conflicts committee, and Mr. Spencer held a telephonic meeting to discuss the ONEOK Partners conflicts committee’s counterproposal and the reasoning of the ONEOK Partners conflicts committee. After that discussion, the ONEOK Partners conflicts committee held a telephonic meeting, with representatives from Andrews Kurth and Barclays present, to discuss the meeting Mr. Strehl had held with Mr. Spencer and confirmed that the ONEOK Partners conflicts committee would wait for a further proposal from ONEOK.

During the evening on January 28th, Messrs. Spencer, Hulse and Reiners communicated to a representative of Barclays a further revised ONEOK proposal of an exchange ratio of 0.966 of a share of ONEOK common stock for each ONEOK Partners common unit (representing an approximate 20% implied premium, based on January 27, 2017 closing prices), and a target post-closing quarterly dividend of $0.74 per share of ONEOK common stock.

 

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Later in the evening on January 28th, representatives of Skadden, Arps sent a revised draft of the merger agreement to Andrews Kurth. The revised draft merger agreement, among other things, (i) eliminated the proposed requirement that the merger be approved by a majority of the common units held by the unaffiliated unitholders, (ii) reinstated the “force the vote” provision, (iii) provided that the ONEOK Partners conflicts committee would have the right to the extent necessary to meet its obligations to change its recommendation of the proposed merger, but provided for the payment by ONEOK Partners of a $200 million termination fee in such event, (iv) eliminated the concept that a change of recommendation by the ONEOK Partners conflicts committee would invalidate and rescind the “Special Approval” of the merger agreement and the transactions contemplated thereby, (v) eliminated certain of the proposed additional limitations on the conduct of ONEOK’s business during the period between signing of the merger agreement and closing of the merger, (vi) required ONEOK to reimburse up to $10 million of ONEOK Partners’ expenses in the transaction if there had been no change of recommendation by the ONEOK board, but the ONEOK stockholders failed to approve the issuance of shares of ONEOK common stock in connection with the merger, but not to pay any termination fee in such circumstance, (vii) required ONEOK to pay a termination fee of $100 million (x) if ONEOK materially breached the merger agreement and (y) in certain cases where ONEOK consummated an alternative transaction entered into within 12 months of termination, and (viii) required ONEOK to pay a termination fee of $200 million if the ONEOK board changed its recommendation or terminated the merger agreement in order to accept another proposal.

On January 29, 2017, a representative of Barclays and Mr. Hulse discussed ONEOK management’s views regarding the expected dividend growth rate for the shares of ONEOK common stock assuming consummation of the merger. Mr. Hulse explained that management was considering communicating a dividend growth rate range of 8 to 10% in order to provide room for fluctuation in the event that performance was below expectations, but that management’s view was that if performance expectations were met, the expected dividend growth rate would be 10%, which was consistent with the dividend growth rate expectation that ONEOK management had presented to the ONEOK board and the rating agencies.

On January 29, 2017, the ONEOK Partners conflicts committee held a telephonic meeting, at which representatives of Barclays and Andrews Kurth were present. The purpose of the meeting was to discuss the counterproposal that ONEOK management had conveyed to representatives from Barclays late in the evening on January 28, 2017. Barclays reported to the ONEOK Partners conflicts committee an earlier conversation it had held with ONEOK management regarding the dividend growth rate range of 8 to 10%. Barclays discussed with the ONEOK Partners conflicts committee its updated preliminary financial analyses using the exchange ratio provided in the earlier counterproposal, including the total expected annual dividends on the shares of ONEOK common stock to be received by the ONEOK Partners unaffiliated unitholders, using the full 8-10% dividend growth rate range. The ONEOK Partners conflicts committee authorized representatives of Barclays to inform ONEOK management of two separate counterproposals. The first proposal was to keep the guidance of dividend growth the same at 8-10%, in which case the ONEOK Partners conflicts committee would request a 1.0175 exchange ratio. The second proposal was to enhance the ONEOK Partners conflicts committee’s ability to rely on the 10% guidance of dividend growth rate, in which case the ONEOK Partners conflicts committee would request a 1.00 exchange ratio. In either case, the conflicts committee agreed that the targeted post-closing dividend of $0.74 per share would remain part of the proposal.

Later on January 29, 2017, at the direction of the ONEOK Partners conflicts committee, a representative of Barclays called Messrs. Spencer and Hulse with the counterproposal from the ONEOK Partners conflicts committee.

Later on January 29, 2017, Messrs. Spencer, Hulse and Reiners called a representative of Barclays with a revised ONEOK proposal of 0.966 of a share of ONEOK common stock for each ONEOK Partners common unit (representing an approximate 20% implied premium, based on January 27, 2017 closing prices) and a target post-closing quarterly dividend of $0.745 per share of ONEOK common stock. Messrs. Spencer, Hulse and Reiners told the Barclays representative that, in light of the expected pro forma coverage ratios, in connection with transaction announcement, ONEOK management would consider adjusting its guidance regarding its expected dividend growth rate to 8 to 10%, and noting in the guidance that management expected the growth rate to be at

 

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the upper end of the range if financial results are consistent with expectations. Following that discussion, Mr. Hulse sent to Barclays additional documentation regarding ONEOK management’s expectations with respect to the post-closing dividend growth rate.

Later on January 29, 2017, the ONEOK Partners conflicts committee held several telephonic meetings, at which representatives of Barclays and Andrews Kurth were present. During these calls, the ONEOK Partners conflicts committee and its advisors discussed the most recent counterproposal from ONEOK and discussed the updated information provided by ONEOK management. Following the discussions, the ONEOK Partners conflicts committee authorized representatives of Barclays to inform ONEOK management of a counterproposal from the ONEOK Partners conflicts committee that contemplated (i) an exchange ratio of 0.99 shares of ONEOK common stock per ONEOK Partners common unit (representing an approximate 23% implied premium based on January 27, 2017 closing prices), (ii) public guidance from ONEOK management of an immediate dividend increase to $0.745 per share of ONEOK common stock and (iii) public guidance from ONEOK of a 8-10% dividend growth thereafter.

Later on January 29, 2017, at the direction of the ONEOK Partners conflicts committee, a representative of Barclays called Messrs. Spencer and Hulse with the ONEOK Partners conflicts committee’s revised counterproposal.

Later, Mr. Strehl and Mr. Spencer spoke by phone. Mr. Strehl informed Mr. Spencer that the ONEOK Partners conflicts committee had determined that a transaction with ONEOK would not be acceptable unless the total expected annual dividends on the shares of ONEOK common stock to be received would project to be accretive to the unaffiliated unitholders in 2020 and 2021 as compared to the distributions contemplated under the standalone ONEOK Partners forecast.

Later on January 29, 2017, Mr. Spencer called Mr. Strehl with a revised ONEOK proposal of a 0.974 exchange ratio (representing an approximate 21% implied premium, based on January 27, 2017 closing prices), and a target post-closing quarterly dividend of $0.745 per share of ONEOK common stock. Mr. Spencer noted that the revised proposal met the objectives of the ONEOK Partners conflicts committee as expressed by Mr. Strehl.

Later on January 29, 2017, the ONEOK Partners conflicts committee held a telephonic meeting, at which representatives of Barclays and a representative of Andrews Kurth were present, to discuss the latest counterproposal from ONEOK. The ONEOK Partners conflicts committee discussed the latest counterproposal, and following that discussion, the ONEOK Partners conflicts committee authorized Mr. Strehl to inform ONEOK management of the ONEOK Partners conflicts committee’s final proposed offer of (i) a 0.985 exchange ratio (representing an approximate 22.5% implied premium, based on January 27, 2017 closing prices), (ii) public guidance from ONEOK management of an immediate dividend increase to $0.745 and (iii) public guidance from ONEOK of a 10% dividend growth thereafter if performance expectations were met.

Later on January 29, 2017, Mr. Strehl called Mr. Spencer with a revised counterproposal of a 0.985 exchange ratio (representing an approximate 22.5% implied premium, based on January 27, 2017 closing prices), a target post-closing quarterly dividend of $0.745 per share of ONEOK common stock, and anticipated dividend growth rate guidance of 10%. Mr. Strehl told Mr. Spencer that this was the ONEOK Partners conflicts committee’s best and final proposal.

Late in the evening on January 29, 2017, the ONEOK board held a special telephonic meeting. Members of ONEOK management and representatives of Skadden, Arps were also in attendance. Members of ONEOK management reported to the ONEOK board regarding the discussions that had occurred with the ONEOK Partners conflicts committee and its advisors following the initial ONEOK proposal on January 24^th, including the most recent counterproposal received from the ONEOK Partners conflicts committee. ONEOK management also explained to the ONEOK board that the draft merger agreement was still under negotiation and that there were unresolved issues. ONEOK management and the ONEOK board also discussed the expected dividend

 

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growth rate, and the ONEOK board concluded that it would be appropriate for ONEOK management to provide guidance regarding the dividend growth rate in a range of 9 to 11%. The ONEOK board also further discussed the potential interests of certain directors in the transaction by virtue of their ownership of ONEOK Partners common units or their positions as directors of ONEOK Partners and certain provisions of the certificate of incorporation of ONEOK regarding the ability of directors who are in any way interested in or connected to a party to a transaction with ONEOK to vote on the transaction, and the potential formation of a special committee of the ONEOK board in light of such provisions. The ONEOK board authorized ONEOK management to attempt to negotiate final terms of a transaction with an exchange ratio of 0.985 of a share of ONEOK common stock for each ONEOK Partners common unit (representing an approximate 22.5% implied premium, based on January 27, 2017 closing prices) , a target post-closing quarterly dividend of $0.745 per share of ONEOK common stock and anticipated dividend growth guidance of 9-11%.

On January 30, 2017, Mr. Spencer called Mr. Strehl and noted that ONEOK was awaiting feedback from the ONEOK Partners conflicts committee regarding ONEOK’s latest draft merger agreement in order to determine whether there were any remaining significant unresolved issues on the draft merger agreement. Mr. Spencer informed Mr. Strehl that if the parties could reach agreement on the terms of the merger agreement, ONEOK management would be prepared to recommend to the ONEOK board the economic terms contained in the last counterproposal by the ONEOK Partners conflicts committee.

Over the course of January 30 and 31, 2017, representatives of Skadden, Arps, in consultation with ONEOK management, and representatives of Andrews Kurth participated in multiple conference calls, and negotiated and finalized the terms of the proposed merger agreement, including the amounts and causes for the applicable termination and reimbursement fees. During this period, the ONEOK Partners conflicts committee held several telephonic meetings with representatives from Andrews Kurth and Barclays regarding the draft merger agreement. Andrews Kurth reviewed the proposed revisions to the draft merger agreement, including certain tax implications and termination fees, with the ONEOK Partners conflicts committee throughout January 30 and 31 as Andrews Kurth and Skadden, Arps worked to finalize the terms of the proposed merger agreement.

On January 31, 2017, the ONEOK Partners conflicts committee held a special meeting, which was attended telephonically by representatives of Barclays and in-person and telephonically by representatives of Andrews Kurth. Andrews Kurth provided the ONEOK Partners conflicts committee with an overview of various matters relating to the proposed merger and the terms of the proposed merger agreement. Also at this meeting, Barclays reviewed its financial analysis of the proposed exchange ratio with the ONEOK Partners conflicts committee and, at the request of the ONEOK Partners conflicts committee, rendered an oral opinion to the ONEOK Partners conflicts committee, which was subsequently confirmed by delivery of a written opinion dated as of January 31, 2017, to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the exchange ratio of 0.985 of a share of ONEOK common stock per common unit of ONEOK Partners provided for pursuant to the merger agreement was fair, from a financial point of view, to the ONEOK Partners unaffiliated unitholders. Barclays also reiterated to the ONEOK Partners conflicts committee the nature of its relationship and engagements for ONEOK Partners, ONEOK and their affiliates since January 1, 2014 and the amount and nature of the fees it received from such parties in its presentation dated January 31, 2017. At this meeting, the ONEOK Partners conflicts committee unanimously (i) determined that the merger and the merger agreement, including the transactions contemplated thereby, are fair and reasonable to ONEOK Partners and the unaffiliated unitholders, (ii) authorized and approved the merger and the merger agreement, including the transactions contemplated thereby, (iii) recommended to the ONEOK Partners board that the ONEOK Partners board (a) approve the merger and the merger agreement, (b) cause the general partner of ONEOK Partners and ONEOK Partners to execute the merger agreement, (c) submit the merger agreement and the merger to the ONEOK Partners unitholders for approval, and (d) subject to obtaining the requisite approval of the ONEOK Partners unitholders, cause the general partner of ONEOK Partners and ONEOK Partners to consummate the merger upon the terms and conditions set forth in the merger agreement, and (iv) subject to approval by the ONEOK Partners board and submission to the ONEOK Partners unitholders for approval, determined to recommend that the

 

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ONEOK Partners unitholders approve the merger agreement. The action by the ONEOK Partners conflicts committee constituted “Special Approval” under the ONEOK Partners limited partnership agreement. See “—Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger.”

Later on January 31, 2017, a meeting of the ONEOK Partners board was held. In addition to members of ONEOK management, the meeting was attended by representatives of Barclays, Andrews Kurth and Skadden, Arps. The ONEOK Partners conflicts committee provided a report to the full ONEOK Partners board as to its determinations, and as to its receipt of the oral opinion of Barclays, confirmed by delivery of a written opinion dated as of January 31, 2017, to the ONEOK Partners conflicts committee to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the exchange ratio of 0.985 of a share of ONEOK common stock per common unit of ONEOK Partners provided for pursuant to the merger agreement was fair, from a financial point of view, to the ONEOK Partners unaffiliated unitholders. The full ONEOK Partners board discussed the report and the proposed transaction with the conflicts committee and Barclays. At this meeting, the ONEOK Partners board (acting based upon the recommendation of the ONEOK Partners conflicts committee) unanimously (i) determined that (a) the consummation of the merger, (b) the exchange ratio of 0.985 of a share of ONEOK common stock for each ONEOK Partners common unit, and (c) the other transactions contemplated by the merger agreement are fair and reasonable to, and in the best interests of, ONEOK Partners and the unaffiliated unitholders, (ii) approved, adopted and authorized the merger agreement, the execution, delivery and performance of the merger agreement and the transactions contemplated by the merger agreement, (iii) determined to submit the merger agreement to the ONEOK Partners unitholders for approval, and (iv) resolved to recommend approval of the merger agreement by the ONEOK Partners unitholders.

Later on January 31, 2017, a special meeting of the ONEOK board was convened. Members of ONEOK management and representatives of J.P. Morgan, Morgan Stanley (financial advisor to ONEOK) and Skadden, Arps were also in attendance. ONEOK management had previously consulted with Morgan Stanley regarding strategic matters periodically throughout the negotiations with the ONEOK Partners conflicts committee. During this meeting, the ONEOK board discussed the proposed merger in which ONEOK would acquire all of the public outstanding common units of ONEOK Partners that it does not already directly or indirectly own in an all stock-for-unit transaction at a ratio of 0.985 of a share of ONEOK common stock per common unit of ONEOK Partners, as well as the contemplated dividend increase and the expected dividend growth rate. Representatives of J.P. Morgan then presented its financial analyses regarding the merger and rendered to the ONEOK board an oral opinion, subsequently confirmed by delivery of a written opinion, dated January 31, 2017, to the effect that, as of such date and based upon and subject to the factors, assumptions, qualifications and any limitations set forth in its written opinion, the exchange ratio in the merger was fair, from a financial point of view, to ONEOK. Representatives of Morgan Stanley discussed with the ONEOK board the expected market reaction as well as benefits and considerations to the merger. Representatives of Skadden, Arps reviewed the principal legal terms of the merger agreement. Following discussion, in light of the fact that certain ONEOK directors are on the ONEOK Partners board and certain ONEOK directors own common units in ONEOK Partners and certain provisions of the certificate of incorporation of ONEOK regarding the ability of directors who are in any way interested in or connected to a party to a transaction with ONEOK to vote on the transaction, the ONEOK board formed a special committee of independent directors that neither sat on the ONEOK Partners board nor owned ONEOK Partners common units to consider and approve the transaction. After discussion, the ONEOK special committee unanimously determined that the transactions contemplated by the merger agreement were advisable and fair to, and in the best interests of, ONEOK and its stockholders, unanimously approved the merger agreement and unanimously recommended that ONEOK stockholders vote in favor of approving the ONEOK common stock issuance contemplated by the merger agreement.

Later that day, ONEOK and ONEOK Partners executed the merger agreement.

On February 1, 2017, ONEOK and ONEOK Partners issued a joint press release announcing the execution of the merger agreement.

 

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Recommendation of the ONEOK Partners Conflicts Committee and the ONEOK Partners Board and their Reasons for the Merger

The ONEOK Partners conflicts committee consists of three independent directors: Craig F. Strehl, Michael G. Hutchinson, and Gary N. Petersen. The ONEOK Partners board authorized the ONEOK Partners conflicts committee to (a) review and evaluate the proposed merger on behalf of ONEOK Partners, (b) negotiate, or delegate to any person or persons the ability to negotiate, the terms of the proposed merger on behalf of ONEOK Partners, (c) hire independent legal and financial advisors, (d) determine whether or not to approve the proposed merger by “Special Approval,” as such term is defined by the ONEOK Partners partnership agreement, and (e) make such recommendations to the ONEOK Partners unaffiliated unitholders, regarding what action, if any should be taken by the ONEOK Partners unaffiliated unitholders with respect to the proposed merger.

On January 31, 2017, the ONEOK Partners conflicts committee (i) determined in good faith that the merger and the merger agreement, including the transactions contemplated thereby, are fair and reasonable to, and in the best interests of, ONEOK Partners and the ONEOK Partners unaffiliated unitholders, (ii) authorized and approved the merger and the merger agreement, including the transactions contemplated thereby, and recommended to the ONEOK Partners board that it: (A) approve the merger and the merger agreement; (B) cause ONEOK Partners GP and ONEOK Partners to execute and deliver the merger agreement; (C) submit the merger and the merger agreement to the ONEOK Partners unitholders for approval; and (D) subject to obtaining the requisite approval of ONEOK Partners unitholders, cause ONEOK Partners GP and ONEOK Partners to complete the merger agreement. The ONEOK Partners conflicts committee also resolved, subject to approval of the ONEOK Partners board and submission to ONEOK Partners unitholders, to recommend approval of the merger and the merger agreement, including the transactions contemplated thereby, by the ONEOK Partners common unitholders. The ONEOK Partners conflicts committee’s approval constitutes “Special Approval,” as such term is defined by the ONEOK Partners partnership agreement.

Later on January 31, 2017, the ONEOK Partners board (based upon the recommendation of the ONEOK Partners conflicts committee) unanimously determined that the merger and the merger agreement, including the transactions contemplated thereby, are fair and reasonable to, and in the best interests of, ONEOK Partners and the ONEOK Partners unaffiliated unitholders, approved the execution, delivery and performance of the merger agreement and the transactions contemplated thereby, including the merger, and resolved to submit the merger and the merger agreement to a vote of the ONEOK Partners unitholders and recommend approval of the merger agreement by the ONEOK Partners unitholders.

ONEOK Partners GP, the ONEOK Partners conflicts committee, and the ONEOK Partners board have not, including, without limitation, in making the determinations set forth above, assumed any obligations to ONEOK Partners or its limited partners (whether fiduciary, contractual, implied, or otherwise) other than those obligations that may exist in the ONEOK Partners partnership agreement. Under the ONEOK Partners partnership agreement, whenever ONEOK Partners GP makes a determination or takes any other action, in its capacity as the general partner of ONEOK Partners, ONEOK Partners GP must make such determination or take such other action in good faith and is not subject to any other or different standard under applicable law (other than the implied contractual covenant of good faith and fair dealing). In order for a determination or other action to be in “good faith” for purposes of the ONEOK Partners partnership agreement, ONEOK Partners GP must believe that the determination or other action is in, or not inconsistent with, the best interests of ONEOK Partners. Nothing in this joint proxy statement/prospectus or the actions or determinations of ONEOK Partners GP, the ONEOK Partners conflicts committee, or the ONEOK Partners board described in this joint proxy statement/prospectus should be read to mean that ONEOK Partners GP, the ONEOK Partners conflicts committee, or the ONEOK Partners board assumed any obligations to ONEOK Partners or its limited partners (whether fiduciary, contractual, implied, or otherwise) other than those obligations that may exist in the ONEOK Partners partnership agreement. You are urged to read the full text of the ONEOK Partners partnership agreement, which is incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 146.

 

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The ONEOK Partners conflicts committee viewed the following factors as generally positive or favorable in arriving at its determinations and recommendation with respect to the merger, the order of which does not necessarily reflect their relative significance:

 

•

The exchange ratio of 0.985 of a ONEOK share for each outstanding ONEOK Partners common unit provides ONEOK Partners common unitholders with an exchange ratio that is above the 2-year average relative exchange ratio as of January 31, 2017 (the last trading day before the public announcement of the merger) based on the trading prices of ONEOK Partners common units and shares of ONEOK common stock during such period.

 

•

The exchange ratio of 0.985 of a ONEOK share for each outstanding ONEOK Partners common unit represents an implied value of $54.28 based upon the closing price of shares of ONEOK common stock on January 31, 2017 (the last trading day before the public announcement of the merger), and represents an implied premium of approximately 26% to the closing price of ONEOK Partners common units on January 31, 2017 and approximately 24% to the 10 trading day volume-weighted average price of ONEOK Partners common units for the period ended on January 31, 2017.

 

•

The merger eliminates the burden on ONEOK Partners’ cost of funding resulting from the level of incentive distributions payable to ONEOK, which could from time to time make it more challenging for ONEOK Partners to pursue accretive acquisitions and relatively more expensive to fund its capital-growth program. The merger is expected to provide ONEOK Partners common unitholders with equity ownership in an entity with a substantially lower cost of funding, which is expected to provide greater ability to pursue accretive capital-growth projects and acquisitions.

 

•

The merger will provide ONEOK Partners common unitholders with equity ownership in an entity with an anticipated increased dividend coverage ratio, which is expected to result in (i) greater market confidence in the current dividend, (ii) an enhanced outlook for dividend growth and (iii) better positioning for varying and uncertain industry and commodity pricing environments, allowing for investment in growth opportunities with reduced dependency on accessing the equity markets to fund growth.

 

•

The ONEOK Partners conflicts committee selected and retained its own independent legal and financial advisors with knowledge and experience with respect to public merger and acquisition transactions, MLPs, ONEOK Partners’ industry generally, and ONEOK Partners particularly, as well as substantial experience advising MLPs and other companies with respect to transactions similar to the merger.

 

•

The financial presentation and opinion of Barclays, dated as of January 31, 2017, to the ONEOK Partners conflicts committee as to the fairness, from a financial point of view and as of the date of the opinion, of the exchange ratio provided for pursuant to the merger agreement, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as more fully described below under “—Opinion of the Financial Advisor to the ONEOK Partners Conflicts Committee.”

 

•

ONEOK’s status as a corporation and its size following the merger is expected to provide a number of benefits relative to ONEOK Partners’ MLP structure, including that corporations attract a broader set of investors as compared to MLPs because certain types of institutional investors face prohibitions or limitations on investing in entities other than corporations, and that ONEOK Partners common unitholders will benefit from enhanced voting and other rights as shareholders of a corporation as opposed to unitholders of an MLP controlled by a general partner.

 

•

The merger will simplify ONEOK’s corporate structure and eliminate potential conflicts of interest between ONEOK and ONEOK Partners.

 

•

The terms and conditions of the merger were determined through arms’-length negotiations between the ONEOK Partners conflicts committee and their independent legal and financial advisors, on the one hand, and the ONEOK board and its representatives and advisors, on the other hand.

 

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•

The terms of the merger agreement, including:

 

○

the provisions requiring ONEOK and its affiliates to vote ONEOK Partners units beneficially owned in favor of the merger proposal;

 

○

the pre-closing operating covenants for ONEOK providing protection to ONEOK Partners common unitholders by restricting ONEOK’s ability to take certain actions prior to the closing of the merger that could reduce the value of the merger consideration;

 

○

the ONEOK Partners termination amounts owed by ONEOK to ONEOK Partners in connection with termination of the merger agreement in certain circumstances (as described under “The Merger Agreement—Effect of Termination; Termination Fees”); and

 

○

the completion of the merger is not conditioned on financing.

In addition, the ONEOK Partners conflicts committee identified and considered several generally or potentially negative or unfavorable factors, to be balanced against the favorable or positive factors listed above in arriving at its determinations and recommendation with respect to the merger, including the following, the order of which does not necessarily reflect their relative significance:

 

•

The merger should be a taxable transaction to ONEOK Partners common unitholders for U.S. federal income tax purposes.

 

•

Following the merger, the income of the resulting combined entity will be subject to double taxation (at the combined company and shareholder levels) for U.S. federal income tax purposes, while income of ONEOK Partners is currently subject to only one level of tax (at the unitholder level).

 

•

The ONEOK Partners conflicts committee did not conduct or authorize Barclays to conduct an auction process or other solicitation of interest from third parties for the acquisition of ONEOK Partners. Since ONEOK indirectly controls ONEOK Partners and ONEOK was not interested in pursuing a sale of ONEOK Partners to a third party, it was unrealistic to expect an unsolicited third-party acquisition proposal to acquire assets or control of ONEOK Partners, and it was unlikely that the ONEOK Partners conflicts committee could conduct a meaningful process to solicit interest in the acquisition of assets or control of ONEOK Partners.

 

•

The ONEOK Partners common unitholders will receive shares of ONEOK common stock that are expected, through 2019, to pay a lower dividend as compared to the expected distributions on ONEOK Partners common units on a standalone basis.

 

•

Although the merger is subject to approval by holders of a majority of the outstanding ONEOK Partners units entitled to vote at the ONEOK Partners special meeting, ONEOK Partners units held by ONEOK and its affiliates (approximately 40.0% of the outstanding common units, assuming the conversion of ONEOK’s Class B units to common units, as of March 3, 2017) will count towards the determination of whether the merger agreement has been adopted by ONEOK Partners common unitholders, and there is no requirement for separate approval by the unaffiliated ONEOK Partners common unitholders.

 

•

The exchange ratio is fixed and therefore the implied value of the consideration payable to ONEOK Partners common unitholders will decrease in the event that the market price of shares of ONEOK common stock decreases prior to the closing of the merger.

 

•

There is risk that the potential benefits expected to be realized in the merger might not be fully realized.

 

•

The merger may not be completed in a timely manner, or at all, which could result in significant costs and disruption to ONEOK Partners’ normal business.

 

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•

Certain terms of the merger agreement, principally:

 

○

the provisions allowing the ONEOK board to make a ONEOK adverse recommendation change in response to a superior proposal or an intervening event (as described under “The Merger Agreement—ONEOK Recommendation and ONEOK Adverse Recommendation Change”);

 

○

the provisions allowing for ONEOK to participate in negotiations with a third party in response to an unsolicited alternative proposal, which may, in certain circumstances, result in a superior proposal for ONEOK (as described under “The Merger Agreement—No Solicitation by ONEOK of Alternative Proposals”);

 

○

the provisions requiring ONEOK Partners to hold a special meeting as soon as practicable to approve the merger, even if the ONEOK Partners conflicts committee or ONEOK Partners board effects a ONEOK Partners adverse recommendation change (as described under “The Merger Agreement—ONEOK Partners GP Recommendation and ONEOK Partners Adverse Recommendation Change”); and

 

○

the termination fees owed by ONEOK Partners to ONEOK in connection with termination of the merger agreement in certain circumstances (as described under “The Merger Agreement—Effect of Termination; Termination Fees”).

 

•

ONEOK Partners common unitholders are not entitled to appraisal rights under the merger agreement, the ONEOK Partners partnership agreement or Delaware law.

 

•

ONEOK Partners common unitholders will be foregoing the potential benefits that could be realized by remaining common unitholders of a stand-alone entity.

 

•

Litigation may be commenced in connection with the merger and such litigation may increase costs and result in a diversion of management focus.

 

•

Some of ONEOK Partners’ directors and executive officers may have interests in the merger that are different from, or in addition to, the interests they may have as ONEOK Partners common unitholders.

In view of the variety of factors and the quality and amount of information considered, the ONEOK Partners conflicts committee as a whole did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination but conducted an overall analysis of the merger. Individual members of the ONEOK Partners conflicts committee may have given different relative considerations to different factors.

The explanation of the reasoning of the ONEOK Partners conflicts committee and certain information presented in this section are forward-looking in nature and, therefore, the information should be read in light of the factors discussed in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

In reaching its conclusions regarding the merger, the ONEOK Partners board not only considered the process by which the ONEOK Partners conflicts committee made its recommendations but also considered the matters described above and considered by the ONEOK Partners conflicts committee. As in the case of the ONEOK Partners conflicts committee, in view of the variety of factors and the quality and amount of information considered, the ONEOK Partners board as a whole did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination but conducted an overall review of the merger. Individual members of the ONEOK Partners board may have given different relative considerations to different factors.

Recommendation of the ONEOK Special Committee and its Reasons for the Merger

In light of the fact that certain ONEOK directors are on the ONEOK Partners board and certain ONEOK directors own ONEOK Partners common units, and certain provisions of the ONEOK certificate of incorporation

 

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regarding the ability of directors who are in any way interested in or connected to a party to a transaction with ONEOK to vote on the transaction, the ONEOK board formed a special committee of independent directors that neither sat on the ONEOK Partners board nor owned ONEOK Partners common units to consider and approve the transaction. The ONEOK special committee consists of four independent directors: Brian L. Derksen, Randall J. Larson, Gary D. Parker and Eduardo A. Rodriguez.

At a meeting held on January 31, 2017, the ONEOK special committee unanimously determined that the merger, the merger agreement, and the transactions contemplated thereby, including the ONEOK stock issuance, are advisable and fair to, and in the best interests of, ONEOK and the ONEOK shareholders. The ONEOK special committee unanimously approved the merger, the merger agreement and the transactions contemplated thereby, including the ONEOK stock issuance, and recommends that the ONEOK shareholders vote FOR the ONEOK stock issuance proposal. In making this determination, the ONEOK special committee consulted with ONEOK’s management and with its financial and legal advisors, and considered a number of factors. In view of the variety of factors and the quality and amount of information considered, the ONEOK special committee as a whole did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination but conducted an overall review of the merger. Individual members of the ONEOK special committee may have given different relative considerations to different factors. The decision of the ONEOK special committee was based upon a number of potential benefits of the transactions and other factors that it believed would contribute to the success of the combined company, and thus benefit the ONEOK shareholders, including the factors mentioned below, the order of which does not necessarily reflect their relative significance.

The purpose of the merger is to enable ONEOK to acquire indirectly all of the outstanding ONEOK Partners common units that ONEOK and its subsidiaries do not already own. The ONEOK special committee believes that the structure of the merger is preferable to other structures because it will enable ONEOK to acquire indirectly at one time all of the outstanding ONEOK Partners common units that it does not already own, while allowing the ONEOK Partners common unitholders (other than ONEOK, ONEOK Partners GP and their affiliates) to participate and share in the potential future profits of ONEOK.

The ONEOK special committee’s reasons for entering into the merger at this time include the following:

 

•

The merger is expected to be immediately accretive to ONEOK shareholders.

 

•

ONEOK believes that the merger provides the opportunity to deliver immediate and significant incremental value to ONEOK shareholders following the merger.

 

•

ONEOK expects that the merger will allow ONEOK to increase significantly its quarterly dividend and to maintain a dividend coverage ratio greater than 1.2 times.

 

•

ONEOK’s improved pro forma financial position as a result of the merger is expected to create approximately $1.5 billion of incremental cash flow coverage over 5 years based on the commodity price scenario assumed, which can be used to reinvest in ONEOK’s business or to reduce outstanding indebtedness.

 

•

The merger is expected to generate significant tax benefits for ONEOK.

 

•

The elimination of the IDRs is expected to reduce the combined company’s cost of funding as compared to ONEOK Partners, the primary growth investment vehicle prior to the merger.

 

•

ONEOK expects the combined entity to receive investment-grade credit ratings, and expects significant retained cash flow and earnings growth to continue its progress toward improved credit metrics.

 

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•

The merger will result in one publicly traded company versus two, which results in one equity holder base. The corporation structure with larger pro forma market capitalization is expected to attract a broader universe of investors and allow ONEOK to access a larger pool of capital to finance future growth.

 

•

ONEOK believes the pro forma company has enhanced growth potential through acquisitions and more financial flexibility to invest in organic growth.

 

•

The fact that J.P. Morgan delivered an oral opinion to the ONEOK board (which was subsequently confirmed in writing by delivery of J.P. Morgan’s written opinion dated January 31, 2017) to the effect that, as of such date and based upon and subject to the factors, assumptions, qualifications and any limitations set forth in its written opinion, the exchange ratio in the merger was fair, from a financial point of view, to ONEOK. See “—Opinion of the Financial Advisor to ONEOK.”

In addition, the ONEOK special committee identified and considered several generally or potentially negative or unfavorable factors, to be balanced against the favorable or positive factors listed above in arriving at its determinations and recommendation with respect to the merger, including the following, the order of which does not necessarily reflect their relative significance:

 

•

The pendency of the merger for an extended period following the announcement of the execution of the merger agreement could have an adverse impact on ONEOK and ONEOK Partners.

 

•

One or more of the conditions to the merger may not be satisfied.

 

•

The attention of management and employees may be diverted during the period prior to completion of the merger, and the potential negative effect on ONEOK’s and ONEOK Partners’ businesses.

 

•

ONEOK common stock may not trade at the expected valuations.

 

•

The potential benefits sought in the merger may not be realized, or may not be realized within the expected time period.

 

•

The merger agreement restricts the conduct of ONEOK’s business during the period between execution of the merger agreement and the completion of the merger.

 

•

Litigation may be commenced in connection with the merger and such litigation may increase costs and result in a diversion of management focus.

 

•

The payment of a termination fee owed by ONEOK to ONEOK Partners in connection with termination of the Merger Agreement in certain circumstances (as described under “The Merger Agreement—Effect of Termination; Termination Fees”) could have material and adverse consequences to the financial condition and results of operations of ONEOK.

 

•

The resulting pro forma company might not achieve its expected financial results.

The explanation of the reasoning of the ONEOK special committee and certain information presented in this section are forward-looking in nature and, therefore, the information should be read in light of the factors discussed in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

Unaudited Projected Financial Information

Neither ONEOK nor ONEOK Partners routinely publishes projections as to long-term future performance or earnings. However, in connection with the proposed merger, ONEOK management and ONEOK Partners GP management prepared and provided to the ONEOK board, the ONEOK Partners board and the ONEOK Partners conflicts committee internal projections that included future financial performance of ONEOK, ONEOK Partners and the pro forma company with respect to 2016 through 2021. The non-public projections for ONEOK, ONEOK Partners and the pro forma company also were provided to Barclays and J.P. Morgan. These non-public projections were used by the ONEOK special committee, the ONEOK Partners board and the ONEOK Partners

 

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conflicts committee for the purposes of evaluating the merger and by Barclays and J.P. Morgan for their use and reliance upon in connection with their separate financial analyses and opinions described in the sections entitled “—Opinion of the Financial Advisor to ONEOK” and “—Opinion of the Financial Advisor to ONEOK Partners Conflicts Committee.” A summary of these projections is included below to give ONEOK shareholders and ONEOK Partners common unitholders access to certain unaudited projections that were made available to the ONEOK special committee, the ONEOK Partners board, the ONEOK Partners conflicts committee and their respective advisors in connection with the merger.

ONEOK and ONEOK Partners each caution you that uncertainties are inherent in projections of any kind. None of ONEOK, ONEOK Partners or any of their affiliates, officers, directors, managers, advisors or other representatives has made or makes any representation or can give any assurance to any ONEOK shareholder or ONEOK Partners common unitholder regarding the ultimate performance of ONEOK or ONEOK Partners compared to the summarized information set forth below or that any projected results will be achieved.

The inclusion of the following summary projections in this joint proxy statement/prospectus should not be regarded as an indication that ONEOK, ONEOK Partners or their respective advisors or other representatives considered or consider the projections to be necessarily predictive of actual future performance or events, and the summary projections set forth below should not be relied upon as such.

The accompanying prospective financial information was not prepared with a view toward public disclosure or toward compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of prospective financial information. In the view of ONEOK management and ONEOK Partners GP management, the prospective financial information was prepared on a reasonable basis, reflected the best available estimates and judgments based on the facts and circumstances existing at the time the projections were prepared, and presented, to the best of ONEOK’s management’s and ONEOK Partners GP’s management’s knowledge and belief, the expected course of action and the expected future financial performance of ONEOK and ONEOK Partners.

The prospective financial information included in this joint proxy statement/prospectus has been prepared by, and is the responsibility of, ONEOK management and ONEOK Partners GP management. PricewaterhouseCoopers LLP has not compiled, examined or performed any procedures with respect to the prospective financial information, nor has PricewaterhouseCoopers LLP expressed any opinion or any other form of assurance on such information. The PricewaterhouseCoopers LLP reports incorporated by reference into this joint proxy statement/prospectus relate to historical financial information of ONEOK and ONEOK Partners, respectively. Such reports do not extend to the prospective financial information included below and should not be read to do so.

While presented with numerical specificity, the unaudited financial projections reflect numerous estimates and assumptions made by ONEOK management and ONEOK Partners GP management with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to each of ONEOK’s and ONEOK Partners’ businesses, all of which are difficult to predict and many of which are beyond ONEOK’s and ONEOK Partners’ control. In developing the projections, ONEOK management and ONEOK Partners GP management made numerous material assumptions, in addition to the assumptions described above, with respect to ONEOK, ONEOK Partners and the pro forma company for the periods covered by such projections, including:

 

•

the price of crude oil, natural gas, and NGLs;

 

•

the cash flow from existing assets and business activities;

 

•

producer customer drilling and completion activities;

 

•

organic growth opportunities, projected volumes, and estimated volume growth and the amounts and timing of related costs and potential economic returns;

 

•

the amount of maintenance and growth capital expenditures;

 

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•

outstanding debt during applicable periods, and the availability and cost of funding; and

 

•

other general business, market and financial assumptions.

The summaries of the unaudited financial projections are not included in this joint proxy statement/prospectus in order to induce any ONEOK shareholder or ONEOK Partners common unitholder to vote in favor of the ONEOK stock issuance proposal or the ONEOK Partners merger proposal, as applicable. By including in this joint proxy statement/prospectus a summary of certain of the unaudited financial projections, neither ONEOK, ONEOK Partners, nor any of their respective advisors or other representatives, have made or are making any representation to any person regarding the ultimate performance of ONEOK, ONEOK Partners or the pro forma company compared to the information contained in the financial projections. The unaudited financial projections cover multiple years and such information by its nature becomes less predictive with each succeeding year.

The following table sets forth certain projected financial information for ONEOK, ONEOK Partners and the pro forma company for 2016 through 2021 with respect to the expected case:

 

						Years Ending December 31,
		2016E				2017E				2018E				2019E				2020E				2021E
						(Millions of dollars, except per share/unit amounts and commodity prices)
Commodity price assumptions
Henry Hub Natural Gas ($/MMBtu)		$	2.45			$	3.00			$	2.90			$	3.15			$	3.20			$	3.30
NGL Composite ($/gallon) (1)		$	0.42			$	0.51			$	0.54			$	0.61			$	0.67			$	0.71
WTI Crude Oil ($/Bbl)		$	42.58			$	45.00			$	54.00			$	60.00			$	65.00			$	67.00
ONEOK Partners
Adjusted EBITDA (2)		$	1,838			$	1,994			$	2,314			$	2,487			$	2,628			$	2,725
Distributable cash flow (3)		$	1,413			$	1,447			$	1,700			$	1,838			$	1,947			$	2,021
Distributions per unit		$	3.16			$	3.19			$	3.37			$	3.59			$	3.86			$	4.14
ONEOK
Distributions from ONEOK Partners		$	790			$	802			$	872			$	962			$	1,068			$	1,180
Cash flow available for dividends (4)		$	681			$	671			$	605			$	684			$	693			$	773
Dividends per share		$	2.46			$	2.49			$	2.64			$	2.85			$	3.12			$	3.42
Pro Forma ONEOK
Adjusted EBITDA (2)		$	NA			$	1,994			$	2,314			$	2,487			$	2,615			$	2,712
Distributable cash flow (3)		$	NA			$	1,370			$	1,658			$	1,808			$	1,917			$	2,010
Dividends per share (5)		$	NA			$	2.98			$	3.28			$	3.61			$	3.97			$	4.36

 

(1)	NGL Composition: 21% Ethane, 52% Propane, 17% Normal Butane, 6% Iso-Butane and 4% Natural Gasoline.

 

(2)	Adjusted EBITDA is a non-GAAP measure of financial performance and is defined as net income adjusted for interest expense, depreciation and amortization, income taxes, allowance for equity funds used during construction and certain other noncash items.

 

(3)	Distributable cash flow is a non-GAAP measure of financial performance and is defined as adjusted EBITDA, computed as described above, less interest expense, maintenance capital expenditures and equity earnings from investments, adjusted for cash distributions received and certain other items.

 

(4)

Cash flow available for dividends is a non-GAAP measure of financial performance and is defined as cash distributions declared from ONEOK’s ownership in ONEOK Partners adjusted for ONEOK’s standalone interest expense, corporate expenses, excluding certain noncash items, payments related to released contracts from ONEOK’s former energy services business, capital expenditures and equity compensation reimbursed by ONEOK Partners.

 

(5)	2017E dividend of $0.745 per share annualized; thereafter, reflects dividend growth of 10% per annum.

 

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The following table sets forth certain projected financial information for ONEOK, ONEOK Partners and the pro forma company for 2016 through 2021 with respect to the flat case:

 

										Years Ending December 31,
		2016E				2017E				2018E				2019E				2020E				2021E
						(Millions of dollars, except per share/unit amounts and commodity prices)
Commodity price assumptions
Henry Hub Natural Gas ($/MMBtu)		$	2.45			$	3.00			$	3.00			$	3.00			$	3.00			$	3.00
NGL Composite ($/gallon) (1)		$	0.42			$	0.51			$	0.52			$	0.51			$	0.55			$	0.57
WTI Crude Oil ($/Bbl)		$	42.58			$	45.00			$	50.00			$	50.00			$	50.00			$	50.00
ONEOK Partners
Adjusted EBITDA (2)		$	1,838			$	1,934			$	2,187			$	2,293			$	2,340			$	2,383
Distributable cash flow (3)		$	1,413			$	1,385			$	1,581			$	1,655			$	1,674			$	1,700
Distributions per unit		$	3.16			$	3.16			$	3.24			$	3.36			$	3.50			$	3.66
ONEOK
Distributions received from ONEOK Partners		$	790			$	790			$	820			$	868			$	926			$	990
Cash flow available for dividends (4)		$	681			$	661			$	577			$	630			$	611			$	657
Dividends per share		$	2.46			$	2.46			$	2.51			$	2.62			$	2.76			$	2.92

 

(1)	NGL Composition: 21% Ethane, 52% Propane, 17% Normal Butane, 6% Iso-Butane and 4% Natural Gasoline

 

(2)	Adjusted EBITDA is a non-GAAP measure of financial performance and is defined as net income adjusted for interest expense, depreciation and amortization, income taxes, allowance for equity funds used during construction and certain other noncash items.

 

(3)	Distributable cash flow is a non-GAAP measure of financial performance and is defined as adjusted EBITDA, computed as described above, less interest expense, maintenance capital expenditures and equity earnings from investments, adjusted for cash distributions received and certain other items.

 

(4)

Cash flow available for dividends is a non-GAAP measure of financial performance and is defined as cash distributions declared from ONEOK’s ownership in ONEOK Partners adjusted for ONEOK’s standalone interest expense, corporate expenses, excluding certain noncash items, payments related to released contracts from ONEOK’s former energy services business, capital expenditures and equity compensation reimbursed by ONEOK Partners.

NEITHER ONEOK NOR ONEOK PARTNERS INTENDS TO UPDATE OR OTHERWISE REVISE THE ABOVE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IF ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH PROJECTIONS ARE NO LONGER APPROPRIATE.

Opinion of the Financial Advisor to ONEOK

Pursuant to an engagement letter effective as of August 3, 2016, ONEOK retained J.P. Morgan as its financial advisor in connection with the merger. At the meeting of the ONEOK board held on January 31, 2017 at which the merger agreement was approved, J.P. Morgan rendered to the ONEOK board an oral opinion, subsequently confirmed by delivery of a written opinion, dated January 31, 2017, to the effect that, as of such date and based upon and subject to the factors, assumptions, qualifications and any limitations set forth in its written opinion, the exchange ratio in the merger was fair, from a financial point of view, to ONEOK.

The full text of the written opinion of J.P. Morgan, dated January 31, 2017, which sets forth, among other things, the assumptions made, matters considered, and qualifications and any limitations on the opinion and the review undertaken by J.P. Morgan in connection with rendering its opinion, is attached as Annex B to this joint

 

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proxy statement/prospectus and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. ONEOK shareholders are urged to read the opinion attached as Annex B to this joint proxy statement/prospectus carefully and in its entirety. J.P. Morgan’s written opinion was addressed to the ONEOK board (in its capacity as such) in connection with and for the purposes of its evaluation of the merger, was directed only to the fairness, from a financial point of view, to ONEOK of the exchange ratio in the merger and did not address any other aspect of the merger or the other transactions contemplated by the merger agreement. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any shareholder of ONEOK as to how such shareholder should vote with respect to the merger or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

•

reviewed a draft dated January 31, 2017 of the merger agreement;

 

•

reviewed certain publicly available business and financial information concerning ONEOK and ONEOK Partners and the industries in which they operate;

 

•

compared the financial and operating performance of ONEOK and ONEOK Partners with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of ONEOK Partners common units and ONEOK common stock and certain publicly traded securities of such other companies;

 

•

reviewed certain internal financial analyses and forecasts prepared by or at the direction of the management of ONEOK and ONEOK Partners relating to their respective businesses, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the merger (the “Synergies”); and

 

•

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

In addition, J.P. Morgan held discussions with certain members of the management of ONEOK and ONEOK Partners GP with respect to certain aspects of the merger, and the past and current business operations of ONEOK and ONEOK Partners, the financial condition and future prospects and operations of ONEOK and ONEOK Partners, the effects of the merger on the financial condition and future prospects of ONEOK, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by ONEOK Partners or ONEOK or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify any such information or its accuracy or completeness and, pursuant to its engagement letter with ONEOK, did not assume any obligation to undertake such independent verification. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of ONEOK Partners or ONEOK under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of ONEOK Partners or ONEOK to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement would have the tax consequences described in discussions with, and materials furnished to J.P. Morgan by, representatives of ONEOK, and would be completed as described in the merger agreement, and that the definitive merger agreement would not differ in any material respects from the draft thereof furnished to J.P. Morgan. J.P. Morgan also assumed that the representations and warranties made by ONEOK and ONEOK Partners in the merger agreement and the related agreements were and will be true and correct in all respects

 

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material to J.P. Morgan’s analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to ONEOK with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the completion of the merger would be obtained without any adverse effect on ONEOK Partners or ONEOK or on the contemplated benefits of the merger.

J.P. Morgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the opinion. J.P. Morgan’s opinion noted that subsequent developments may affect J.P. Morgan’s opinion and that J.P. Morgan does not have any obligation to update, revise, or reaffirm its opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, to ONEOK of the exchange ratio in the merger and J.P. Morgan expressed no opinion as to the fairness of the exchange ratio to the holders of any class of securities, creditors or other constituencies of ONEOK or as to the underlying decision by ONEOK to engage in the merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the exchange ratio in the merger or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which ONEOK Partners common units or ONEOK common stock will trade at any future time.

The terms of the merger agreement, including the exchange ratio, were determined through negotiations between ONEOK and the ONEOK Partners conflicts committee, and the decision to enter into the merger agreement was solely that of the ONEOK special committee and the ONEOK Partners board (acting based upon the recommendation of the ONEOK Partners conflicts committee). J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by the ONEOK special committee in its evaluation of the merger and should not be viewed as determinative of the views of the ONEOK special committee or management with respect to the merger or the exchange ratio.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in connection with its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with rendering its opinion to the ONEOK board on January 31, 2017 and contained in the presentation delivered to the ONEOK board on such date in connection with the rendering of such opinion and does not purport to be a complete description of the analyses or data presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s analyses.

Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial data of ONEOK Partners and ONEOK with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be sufficiently analogous to ONEOK Partners or ONEOK.

For ONEOK Partners, the companies selected by J.P. Morgan (the “ONEOK Partners Peers”), were as follows:

 

•

Enterprise Products Partners L.P. (“EPD”)

 

•

Energy Transfer Partners L.P. (“ETP”)

 

•

Williams Partners L.P. (“WPZ”)

 

•

MPLX, L.P. (“MPLX”)

 

•

Targa Resources Corporation (“TRGP”)

 

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•

EnLink Midstream Partners, LP (“ENLK”)

 

•

Enable Midstream Partners, LP (“ENBL”)

 

•

DCP Midstream Partners, LP (“DPM”)

For ONEOK, the companies selected by J.P. Morgan (the “ONEOK Peers”), were as follows:

 

•

EnLink Midstream LLC (“ENLC”)

 

•

Energy Transfer Equity, L.P. (“ETE”)

 

•

Western Gas Equity Partners, LP (“WGP”)

 

•

EQT GP Holdings, LP (“EQGP”)

 

•

Tallgrass Energy GP, LP (“TEGP”)

 

•

NuStar GP Holdings, LLC (“NSH”)

The companies selected as the ONEOK Partners peers were selected because they have similar midstream asset profiles and, with the exception of TRGP, are all publicly traded master limited partnerships. Those selected as ONEOK peers are all general partners of midstream MLPs that, like ONEOK, hold IDRs and have minimal or no operating assets other than at the MLP. The companies selected may be considered similar to those of ONEOK Partners and ONEOK based on the nature of their assets and operations; however, none of the companies selected is identical or directly comparable to ONEOK Partners or ONEOK, and certain of these companies may have characteristics that are materially different from those of ONEOK Partners and ONEOK. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than would affect ONEOK Partners or ONEOK.

For each company listed above, J.P. Morgan calculated and compared various financial multiples and ratios based on publicly available information as of January 27, 2017. For each of the following analyses performed by J.P. Morgan, estimated financial data for the selected companies were based on (except as otherwise noted) ONEOK and ONEOK Partners GP management projections with respect to the expected case (in the case of ONEOK and ONEOK Partners) and information obtained from FactSet Research Systems and broker estimates (in the case of the other selected companies). The information J.P. Morgan calculated for each of the selected companies included:

 

•

Multiple of firm value (calculated as the market value of the company’s fully diluted common equity plus debt, minority interest and preferred equity, less cash and cash equivalents) to estimated EBITDA (calculated as earnings before interest, taxes, depreciation and amortization) for the years ending December 31, 2017 and 2018;

 

•

Multiple of price (using the share or unit price, as applicable, as of January 27, 2017) to (i) with respect to the ONEOK Partners Peers, estimated distributable cash flow (“DCF”) per common unit (calculated by running total DCF through the company’s distribution waterfall) and (ii) with respect to the ONEOK Peers, estimated cash available for distribution (“CAFD”) per common share or unit as applicable, in each case, for the years ending December 31, 2017 and 2018; and

 

•

The estimated calendar year 2017 and 2018 distribution yields, calculated as the current or estimated distribution per common unit or share, as applicable, divided by the common unit / share price as of January 27, 2017.

 

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Results of the analysis for ONEOK Partners and ONEOK, respectively, are as follows:

ONEOK Partners

ONEOK Partners Peers

 

Firm value / estimated EBITDA

Price / DCF per common unit

Distribution yield

2017E

2018E

2017E

2018E

2017E

2018E

EPD

14.9x

13.8x

14.5x

13.0x

5.8

%

6.1

%

ETP

10.8x

9.0x

8.9x

8.9x

8.6

%

9.5

%

WPZ

12.5x

11.5x

13.5x

12.4x

5.7

%

6.0

%

MPLX

14.8x

11.8x

14.0x

12.0x

6.1

%

6.7

%

TRGP

15.2x

13.5x

14.8x

13.0x

6.6

%

7.0

%

ENLK

13.5x

12.1x

11.7x

11.9x

8.6

%

8.6

%

ENBL

12.2x

11.4x

11.7x

10.9x

7.7

%

7.9

%

DPM

14.2x

13.7x

12.9x

12.2x

7.8

%

7.8

%

J.P. Morgan also calculated the same financial multiples and ratios for ONEOK Partners at the market price as of January 27, 2017, based on both the ONEOK Partners projections with respect to the expected case and selected equity research reports (referred to as “street estimates” in the below table).

 

Firm value / estimated EBITDA

Price / DCF per common unit

Distribution yield

2017E

2018E

2017E

2018E

2017E

2018E

ONEOK Partners (based on ONEOK management projections)

14.3x

12.3x

13.2x

11.6x

7.2

%

7.6

%

ONEOK Partners (based on street estimates)

14.2x

13.3x

12.9x

12.2x

7.2

%

7.5

%

J.P. Morgan did not rely solely on the quantitative results of the selected public company analysis, but also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of ONEOK Partners and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, asset profiles and capital structures between ONEOK Partners and the companies included in the public trading multiples analysis. Based upon these judgments, J.P. Morgan selected multiple reference ranges for ONEOK Partners of 12.0x—15.0x and 11.5x—14.0x for firm value to estimated 2017 and 2018 EBITDA, respectively; ranges of 12.0x—15.0x and 11.0x—13.0x for price to estimated 2017 and 2018 DCF per common unit, respectively; and ranges of 8.00%—6.00% and 8.25%—6.25% for estimated 2017 and 2018 distribution yields, respectively.

After applying such ranges to the appropriate metrics for ONEOK Partners based on the ONEOK and ONEOK Partners GP management expected case forecast, the analysis indicated the following implied equity value per share ranges for ONEOK Partners common units (resulting per unit values were in all cases rounded to the nearest $0.25 per unit):

ONEOK Partners Implied Equity Value Per Common Unit Range

 

		Firm value / estimated EBITDA								Price / DCF per common unit								Distribution yield
		2017E				2018E				2017E				2018E				2017E				2018E
Low		$	28.00			$	37.25			$	40.25			$	41.75			$	39.75			$	40.75
High		$	49.00			$	57.50			$	50.50			$	49.50			$	53.25			$	53.75

 

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The ranges of implied equity values per ONEOK Partners common unit were compared to the ONEOK Partners common unit closing price of $44.20 on January 27, 2017 and the implied consideration per ONEOK Partners common unit of $54.09 based on the exchange ratio and the ONEOK common stock closing price of $54.91 on January 27, 2017.

ONEOK

ONEOK Peers

 

Firm value / estimated EBITDA

Price / CAFD per share

Distribution yield

2017E

2018E

2017E

2018E

2017E

2018E

ENLC

14.3x

13.8x

16.7x

16.2x

5.8

%

5.8

%

ETE

21.2x

13.1x

22.2x

12.7x

6.1

%

6.9

%

WGP

23.0x

18.3x

23.1x

18.4x

4.3

%

5.2

%

EQGP

32.1x

25.5x

32.1x

25.5x

3.1

%

4.0

%

TEGP

20.1x

15.6x

20.7x

16.5x

4.8

%

6.1

%

NSH

14.0x

13.6x

14.1x

13.8x

7.3

%

7.3

%

J.P. Morgan also calculated the same financial multiples for ONEOK based on both the ONEOK and ONEOK Partners GP management projections with respect to the expected case and street estimates.

 

Firm value / estimated EBITDA

Price / CAFD per share

Distribution yield

2017E

2018E

2017E

2018E

2017E

2018E

ONEOK (based on ONEOK management projections)

16.5x

15.2x

17.5x

19.4x

4.5

%

4.8

%

ONEOK (based on street estimates)

16.3x

15.0x

17.7x

16.2x

4.5

%

5.0

%

J.P. Morgan did not rely solely on the quantitative results of the selected public company analysis, but also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of ONEOK and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, asset profiles and capital structures between ONEOK and the companies included in the public trading multiples analysis. Based upon these judgments, J.P. Morgan selected multiple reference ranges for ONEOK of 16.0x—18.0x and 14.0x—16.0x for firm value to estimated 2017 and 2018 EBITDA, respectively; ranges of 17.0x—19.0x and 16.0x—18.0x for price to estimated 2017 and 2018 CAFD per common share, respectively; and ranges of 5.50%—4.25% and 5.75%—4.75% for estimated 2017 and 2018 distribution yields, respectively.

After applying such ranges to the appropriate metrics for ONEOK based on the ONEOK and ONEOK Partners GP management expected case forecast, the analysis indicated the following implied equity value per share ranges for ONEOK common stock (resulting per share values were in all cases rounded to the nearest $0.25 per unit):

ONEOK Implied Equity Value Per ONEOK Common Share Range

 

		Firm value / estimated EBITDA								Price / CAFD per share								Distribution yield
		2017E				2018E				2017E				2018E				2017E				2018E
Low		$	53.00			$	50.00			$	53.25			$	45.25			$	45.25			$	46.00
High		$	60.50			$	58.25			$	59.75			$	50.75			$	58.50			$	55.50

 

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The ranges of implied equity values per ONEOK common share were compared to the ONEOK common share closing price of $54.91 on January 27, 2017.

Discounted Cash Flow Analysis

J.P. Morgan conducted a Discounted Cash Flow Analysis for the purpose of determining an implied equity value per unit for ONEOK Partners common units and an implied equity value per share for ONEOK common stock. A Discounted Cash Flow Analysis is a method of evaluating an asset using estimates of the future unlevered after-tax free cash flows generated by the asset and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” The “unlevered after-tax free cash flows” refers to a calculation of the future after-tax cash flows of an asset without including in such calculation any debt servicing costs. “Present value” refers to the current value of one or more future cash payments from the asset, which is referred to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period.

J.P. Morgan calculated the present value of unlevered after-tax free cash flows that each of ONEOK Partners and ONEOK is expected to generate during the period from calendar year 2017 through the end of 2026 using the expected case financial forecasts prepared by ONEOK and ONEOK Partners GP management for calendar year 2017 through the end of 2021 and extrapolations for calendar year 2022 through the end of 2026 reviewed and approved by ONEOK’s and ONEOK Partners GP’s management as reasonable extrapolations of the ONEOK and ONEOK Partners 2017 through 2021 expected case financial forecasts for use in J.P. Morgan’s analysis.

J.P. Morgan also calculated a range of terminal values for each of ONEOK Partners and ONEOK at December 31, 2026 by applying a terminal growth rate ranging from 2.00% to 2.50% in the case of ONEOK Partners, and 2.25% to 3.25%, in the case of ONEOK, to the estimated final year EBITDA of each of ONEOK Partners and ONEOK to derive terminal period unlevered after-tax free cash flows for each of ONEOK Partners and ONEOK. The unlevered after-tax free cash flows and range of terminal values for each company were then discounted to present values using a discount rate range of 6.75% to 7.50%, in the case of ONEOK Partners, and 8.50% to 10.00%, in the case of ONEOK, which ranges were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of ONEOK Partners and ONEOK, respectively. The present value of the unlevered after-tax free cash flows and the range of terminal values for each company were then adjusted for net debt and non-controlling interests to indicate the range of implied equity values set forth in the table below (rounded to the nearest $0.25):

 

		Implied equity value per share
ONEOK Partners			$33.00 – $55.75
ONEOK			$46.00 – $66.50

The range of implied equity value per unit for ONEOK Partners was compared to ONEOK Partners’ closing unit price of $44.20 on January 27, 2017, and to an implied merger price based on the exchange ratio of $54.09 per share, and the range of implied equity value per share for ONEOK was compared to ONEOK’s closing share price of $54.91 on January 27, 2017.

Distribution Discount Analysis

J.P. Morgan conducted a distribution discount analysis for the purpose of determining an implied fully diluted equity value per unit for ONEOK Partners common units and an implied fully diluted equity value per share for ONEOK common stock. A distribution discount analysis is a method of evaluating the equity value of a company using estimates of the future distributions to equityholders generated by the company and taking into consideration the time value of money with respect to those future distributions by calculating their present value.

 

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J.P. Morgan calculated the present value of the future distributions to equityholders that each of ONEOK Partners and ONEOK is expected to generate during the period from calendar year 2017 through the end of 2026 using the expected case financial forecasts prepared by ONEOK and ONEOK Partners GP management for calendar year 2017 through the end of 2021 and extrapolations for calendar year 2022 through the end of 2026 reviewed and approved by ONEOK’s and ONEOK Partners GP’s management as reasonable extrapolations of the ONEOK and ONEOK Partners 2017 through 2021 expected case financial forecasts for use in J.P. Morgan’s analysis.

J.P. Morgan also calculated a range of terminal values for each of ONEOK Partners and ONEOK at December 31, 2026 by applying a terminal growth rate ranging from 2.00% to 2.50%, in the case of ONEOK Partners, and 2.25% to 3.25%, in the case of ONEOK, to the projected final year distribution stream of each of ONEOK Partners and ONEOK to derive a range of terminal period distributions for each of ONEOK Partners and ONEOK. The distribution streams and range of terminal values for each company were then discounted to present values using a discount rate range of 9.25% to 11.0%, in the case of ONEOK Partners, and 9.25% to 11.25%, in the case of ONEOK, which ranges were chosen by J.P. Morgan based upon an analysis of the cost of equity of ONEOK Partners and ONEOK, respectively. The present value of the estimated future distributions and the range of terminal values for each company were then adjusted for net debt and non-controlling interests to indicate the range of implied equity values set forth in the table below (rounded to the nearest $0.25):

 

		Implied equity value per share
ONEOK Partners			$49.00 – $63.50
ONEOK			$41.00 – $58.00

The range of implied equity value per unit for ONEOK Partners was compared to ONEOK Partners’ closing unit price of $44.20 on January 27, 2017, and to an implied merger price based on the exchange ratio of $54.09 per share, and the range of implied equity value per share for ONEOK was compared to ONEOK’s closing share price of $54.91 on January 27, 2017.

Relative Valuation Analysis

Based upon the (i) implied equity values for ONEOK Partners and ONEOK calculated in its public companies analysis described above, (ii) the implied equity values for ONEOK Partners and ONEOK calculated in its Discounted Cash Flow Analysis described above and (iii) the implied equity values for ONEOK Partners and ONEOK calculated in its distribution discount analysis described above, J.P. Morgan calculated an implied range of exchange ratios. For each comparison, J.P. Morgan compared the highest equity value for ONEOK Partners to the lowest equity value for ONEOK to derive the highest implied exchange ratio for ONEOK Partners common unitholders implied by each set of reference ranges. J.P. Morgan also compared the lowest equity value for ONEOK Partners to the highest equity value for ONEOK to derive the lowest implied exchange ratio for ONEOK Partners common unitholders implied by each set of reference ranges. The implied ranges of the exchange ratio resulting from this analysis were:

 

		Implied Exchange Ratio
		Low				High
Public Companies Analysis
Firm value to 2017E EBITDA			0.4628x				0.9245x
Firm value to 2018E EBITDA			0.6395x				1.1500x
Price to 2017E CAFD per common unit			0.6736x				0.9484x
Price to 2018E CAFD per common unit			0.8227x				1.0939x
2017E distribution yield			0.6795x				1.1768x
2018E distribution yield			0.7342x				1.1685x
Discounted Cash Flow Analysis			0.4962x				1.2120x
Distribution Discount Analysis			0.8448x				1.5488x

 

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The resulting implied ranges of the exchange ratio were then compared to the exchange ratio of 0.9850x in the merger.

Other

52-Week High / Low Exchange Ratio Trading Analysis

J.P. Morgan reviewed the 52-week trading range of the ONEOK Partners common unit price and the ONEOK common stock price for the period ending January 27, 2017. The reference ranges were as follows:

 

ONEOK Partners
52-week high		$	47.01
52-week low		$	22.00
ONEOK
52-week high		$	59.47
52-week low		$	18.88

J.P. Morgan calculated (1) the ratio of the lowest 52-week closing unit price for ONEOK Partners to the highest 52-week closing stock price for ONEOK, and (2) the ratio of the highest 52-week closing unit price for ONEOK Partners to the lowest 52-week closing stock price for ONEOK to derive an implied exchange ratio range. The lowest implied exchange ratio was 0.3699x and the highest implied exchange ratio was 2.4899x, in each case as compared to the exchange ratio of 0.9850x in the merger.

J.P. Morgan noted that the 52-week high/low historical trading analysis was presented merely for reference purposes only, and was not relied upon for valuation purposes.

Analyst Price Targets

J.P. Morgan reviewed the price targets for ONEOK Partners and ONEOK published by publicly available equity research analysts covering ONEOK Partners and ONEOK. The price targets presented were in the following ranges: the price target range for ONEOK Partners was $39.00 to $50.00 with a median of $45.00, as compared to ONEOK Partners’ closing unit price of $44.20 on January 27, 2017, and an implied merger price based on the exchange ratio of $54.09 per share, and the price target range for ONEOK was $37.00 to $61.00 with a median of $49.00, as compared to ONEOK’s closing share price of $54.91 on January 27, 2017.

J.P. Morgan calculated (1) the ratio of the lowest analyst target unit price for ONEOK Partners to the highest analyst target stock price for ONEOK, and (2) the ratio of the highest analyst target unit price for ONEOK Partners to the lowest analyst target stock price for ONEOK to derive an implied exchange ratio range. The lowest implied exchange ratio was 0.6393x and the highest implied exchange ratio was 1.3514x, in each case as compared to the exchange ratio of 0.9850x in the merger.

The analyst price targets were presented merely for reference purposes only, and were not relied upon for valuation purposes.

Transaction Multiples Analysis

Using publicly available information, J.P. Morgan examined selected precedent transactions in the midstream sector. For purposes of this analysis, J.P. Morgan selected the transactions that J.P. Morgan considered most relevant to its analysis due to the similarity of their participants, size and other factors to the arrangement and identified a number of transactions that were, in its judgment, sufficient to permit J.P. Morgan to conduct its analysis; J.P. Morgan did not however attempt to identify all transactions that may be similar to the merger.

 

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For each of the selected transactions for which the relevant information was publicly available, among other calculations, J.P. Morgan calculated the multiple of price (using the share or unit price, as applicable) to DCF per common unit/share (calculated by running total DCF through the applicable distribution waterfall).

Based on the results of this analysis, J.P. Morgan selected a multiple reference range for ONEOK Partners of 14.0x—18.0x for the price to DCF per common unit/share.

After applying such range to the estimated DCF per common unit for the year ending December 31, 2017 for ONEOK Partners based on the ONEOK projections with respect to the expected case, the analysis indicated an implied equity value per common unit range for ONEOK Partners of $47.00 to $60.50.

The transaction multiples analysis was presented merely for reference purposes only, and was not relied upon for valuation purposes.

Illustrative Implied Value Creation Analysis

J.P. Morgan conducted an illustrative implied value creation analysis, based on the expected case financial forecasts prepared by ONEOK and ONEOK Partners GP management for calendar years 2017 through the end of 2021 and extrapolations for calendar years 2022 through the end of 2026 reviewed and approved by ONEOK’s and ONEOK Partners GP’s management as reasonable extrapolations of the ONEOK and ONEOK Partners 2017 through 2021 expected case financial forecasts for use in J.P. Morgan’s analysis, that compared the implied equity value per share of ONEOK common stock derived from a discounted cash flow valuation on a standalone basis to the pro forma combined company implied equity value per share, adjusted for the exchange ratio of 0.985x. J.P. Morgan determined the pro forma combined company implied equity value per share by calculating: (i) the sum of (a) the implied equity value of each of ONEOK and ONEOK Partners using the midpoint value of each as determined in J.P. Morgan’s Discounted Cash Flow Analysis described above in “—Discounted Cash Flow Analysis”, excluding in the case of ONEOK Partners the value of units already owned by ONEOK, (b) 100% of the estimated discounted present value of the Synergies discounted to present value using a 7.83% weighted average cost of capital, and divided by (ii) the pro forma number of shares outstanding based upon the exchange ratio provided for in the merger (i.e., 0.985x). The analysis indicated, on an illustrative basis, that the merger created hypothetical incremental implied value for the holders of ONEOK common stock of 4%.

J.P. Morgan noted that the value creation analysis was a hypothetical, illustrative analysis only, was not relied upon for valuation purposes and was not a prediction as to future share trading.

Miscellaneous

The foregoing summary of certain financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole and the narrative description of the analyses, could create an incomplete view of the processes underlying its analyses and opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of ONEOK Partners or ONEOK. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion.

 

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Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or performed by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies reviewed as described in the above summary is identical to ONEOK Partners or ONEOK. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analyses, may be considered similar to those of ONEOK Partners and ONEOK. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to ONEOK Partners and ONEOK.

As part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. J.P. Morgan was selected by ONEOK as its financial advisor with respect to the proposed merger on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters and its familiarity with ONEOK Partners, ONEOK and the industries in which they operate.

For services rendered in connection with the merger (including the delivery of its opinion), ONEOK has agreed to pay J.P. Morgan a transaction fee of $10.0 million, which is payable in installments as follows: (i) $2.5 million on the earlier of the public announcement of the merger or the delivery of a fairness opinion by J.P. Morgan and (ii) the balance upon the closing of the merger. Pursuant to the terms of the engagement of J.P. Morgan, ONEOK may, in its sole discretion, also pay J.P. Morgan a discretionary fee of $2.5 million, which, if payable, shall be payable upon completion of the merger. In addition, ONEOK has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the federal securities laws.

During the two years preceding the date of J.P. Morgan’s opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with ONEOK Partners for which J.P. Morgan and such affiliates have received customary compensation. Such services during such period have included acting as joint lead bookrunner on ONEOK Partners’ offering of 3.8% senior notes due 2020 and 4.9% senior notes due 2025 in March 2015 and as joint lead arranger and joint bookrunner on ONEOK Partners’ senior unsecured delayed-draw three-year $1.0 billion term loan agreement dated January 8, 2016 (the “term loan agreement”). During the preceding two year period ending on January 31, 2017, the aggregate fees received by J.P. Morgan from ONEOK Partners, ONEOK and their respective affiliated companies were approximately $1.6 million. During such two year period, neither J.P. Morgan nor its affiliates have had any other material financial advisory or other material commercial or investment banking relationships with ONEOK. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 2% and less than 1%, respectively, of the common units of ONEOK Partners and the outstanding common stock of ONEOK. In the ordinary course of its businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of ONEOK Partners or ONEOK for their own account or for the accounts of customers and, accordingly, J.P. Morgan and its affiliates may at any time hold long or short positions in such securities or other financial instruments.

Opinion of the Financial Advisor to the ONEOK Partners Conflicts Committee

The ONEOK Partners conflicts committee selected and engaged Barclays to act as the ONEOK Partners conflicts committee’s independent financial advisor with respect to the proposed transaction. On January 31, 2017, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to the ONEOK Partners

 

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conflicts committee that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the exchange ratio to be offered to the ONEOK Partners unaffiliated unitholders in the proposed transaction was fair, from a financial point of view, to such ONEOK Partners unaffiliated unitholders.

The full text of Barclays’ written opinion, dated as of January 31, 2017, is attached to this joint proxy statement/prospectus as Annex C. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

Barclays’ opinion, the issuance of which was approved by Barclays’ Valuation and Fairness Opinion Committee, is addressed to the ONEOK Partners conflicts committee, addresses only the fairness to ONEOK Partners unaffiliated unitholders, from a financial point of view, of the exchange ratio to be offered to such ONEOK Partners unaffiliated unitholders in the proposed transaction and does not constitute a recommendation to any ONEOK Partners unaffiliated unitholder as to how such ONEOK Partners unaffiliated unitholder should vote or act with respect to the proposed transaction or any other matter. The terms of the proposed transaction were determined through arms’ length negotiations between the ONEOK Partners conflicts committee and ONEOK and were approved unanimously by the ONEOK Partners conflicts committee. Barclays did not recommend that any specific form of consideration should be offered to ONEOK Partners unaffiliated unitholders or that any specific form of consideration constituted the only appropriate consideration for the proposed transaction. Barclays was not requested to address, and its opinion does not in any manner address, the underlying business decision to proceed with or effect the transaction or the likelihood of completion of the transaction or the relative merits of the proposed transaction as compared to any other transaction or business strategy in which ONEOK Partners might engage. In addition, Barclays expressed no view as to, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the proposed transaction, or any class of such persons, relative to the exchange ratio in the proposed transaction or otherwise. No limitations were imposed by the ONEOK Partners conflicts committee upon Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.

In arriving at its opinion, Barclays reviewed and analyzed, among other things:

 

•

the merger agreement and the specific terms of the proposed transaction, including the exchange ratio and the provision setting forth ONEOK management’s intention, as of the date of the merger agreement, to recommend to ONEOK’s board, following completion of the proposed transaction, an increase to the quarterly dividend on the shares of ONEOK common stock to $0.745 per share (an annualized dividend of $2.98 per share) for the first dividend declaration date immediately following the completion of the merger;

 

•

publicly available information concerning ONEOK Partners and ONEOK that Barclays believed to be relevant to its analysis, including each of ONEOK Partners’ and ONEOK’s Annual Reports on Form 10-K for the fiscal year ended December 31, 2015 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2016, June 30, 2016 and September 30, 2016;

 

•

financial and operating information with respect to the businesses, operations and prospects of ONEOK Partners, including financial projections of ONEOK Partners prepared by management of ONEOK and ONEOK Partners GP (the “ONEOK Partners Projections”) as described in the section entitled “—Unaudited Projected Financial Information”;

 

•

financial and operating information with respect to the business, operations and prospects of ONEOK, including financial projections of ONEOK prepared by the management of ONEOK (the “ONEOK Projections”) as described in the section entitled “—Unaudited Projected Financial Information”;

 

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•

financial and operating information with respect to the business, operations and prospects of the pro forma combined company (“Pro Forma ONEOK”), including financial projections of Pro Forma ONEOK prepared by management of ONEOK and ONEOK Partners GP (collectively, the “Pro Forma Projections”) (as described in the section entitled “—Unaudited Projected Financial Information;” and together with the ONEOK Partners Projections and ONEOK Projections, the “Projections”);

 

•

a comparison of the trading histories of the ONEOK Partners common units and the shares of ONEOK common stock with each other and with other companies that Barclays deemed relevant from January 30, 2014 to January 30, 2017;

 

•

a comparison of the historical financial results and present financial condition of each of ONEOK Partners and ONEOK with those of other companies that Barclays deemed relevant;

 

•

the pro forma impact of the proposed transaction on the future financial performance of the combined company, including (i) the amounts and timing of the cost savings and estimated tax savings (collectively, the “Expected Synergies”) and (ii) ONEOK’s estimates of quarterly dividend growth through 2021, the anticipated impact on dividend coverage ratios, cash available for distributions to shareholders of the combined company and credit ratings (collectively, the “Expected Benefits”), in each case as prepared by management of ONEOK and ONEOK Partners GP;

 

•

published estimates of independent research analysts with respect to the future financial performance of ONEOK Partners and ONEOK; and

 

•

a comparison of the financial terms of the proposed transaction with the financial terms of certain other transactions that Barclays deemed relevant.

In addition, Barclays had discussions with the management of ONEOK and ONEOK Partners GP concerning the business, operations, assets, liabilities, financial condition, and prospects of ONEOK and ONEOK Partners and undertook such other studies, analyses and investigations as Barclays deemed appropriate.

In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of such information (and has not assumed responsibility or liability for any independent verification of such information). Barclays also relied upon the assurances of the management of ONEOK and ONEOK Partners GP that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the ONEOK Partners Projections, the ONEOK Projections, the Pro Forma Projections, the Expected Synergies and the Expected Benefits, at the direction of the ONEOK Partners conflicts committee, Barclays assumed that such projections and estimates were reasonably prepared on a basis reflecting the best then-available estimates and judgments of the management of ONEOK and the management of ONEOK Partners GP, other than with respect to the ONEOK Projections, as to the future financial performance of ONEOK Partners, ONEOK and Pro Forma ONEOK, that ONEOK Partners, ONEOK and Pro Forma ONEOK will perform substantially in accordance with the ONEOK Partners Projections, the ONEOK Projections, and the Pro Forma Projections, respectively, and that the Expected Synergies and the Expected Benefits will be realized in accordance with such estimates. In arriving at its opinion, Barclays assumed no responsibility for and expressed no view as to any of such projections or estimates or the assumptions on which they were based. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of ONEOK Partners or ONEOK, and did not make or obtain any evaluations or appraisals of the assets or liabilities of ONEOK Partners or ONEOK.

Barclays’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, January 31, 2017. Barclays was not authorized to solicit, and Barclays did not solicit, any indications of interest from any third party with respect to the purchase of all or any part of ONEOK Partners’ business. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after January 31, 2017. In addition, Barclays expressed no opinion as to the prices at which ONEOK Partners common units or shares of ONEOK common stock would trade following

 

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the announcement or completion of the proposed transaction. Barclays’ opinion should not be viewed as providing any assurance that the market value of the shares of Pro Forma ONEOK common stock (“Pro Forma ONEOK Shares”) to be held by the ONEOK Partners unaffiliated unitholders after the completion of the proposed transaction will be in excess of the market value of the ONEOK Partners common units owned by such ONEOK Partners unaffiliated unitholders at any time prior to the announcement or completion of the proposed transaction.

Barclays assumed the accuracy of the representations and warranties contained in the merger agreement and all agreements related thereto. Barclays also assumed, upon the advice of ONEOK and ONEOK Partners GP and with the ONEOK Partners conflicts committee’s consent, that all material governmental, regulatory and third party approvals, consents and releases for the proposed transaction will be obtained within the constraints contemplated by the merger agreement and that the proposed transaction will be completed in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays did not express any opinion as to any tax or other consequences that might result from the proposed transaction, nor does Barclays’ opinion address any legal, tax, regulatory or accounting matters.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to the ONEOK Partners common units or the shares of ONEOK common stock but rather made its determination as to fairness, from a financial point of view, to ONEOK Partners unaffiliated unitholders of the exchange ratio to be offered to such ONEOK Partners unaffiliated unitholders in the proposed transaction on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

The following is a summary of the material financial analyses used by Barclays in preparing its opinion to the ONEOK Partners conflicts committee. Certain financial, comparative and other analyses summarized below include information presented in tabular format. In order to fully understand the financial, comparative and other analyses used by Barclays, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. None of the ONEOK Partners conflicts committee, ONEOK Partners, ONEOK, ONEOK Partners GP, Barclays or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or reflect the prices at which the businesses may actually be sold.

In applying the various analyses to the businesses, operations and prospects of ONEOK Partners, ONEOK and Pro Forma ONEOK, and the particular circumstances of the proposed transaction, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. In addition, Barclays made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of ONEOK Partners and ONEOK. Such qualitative judgments and assumptions of Barclays were made following discussions with the managements of each of ONEOK Partners and ONEOK. Accordingly, the methodologies used, the implied equity value reference ranges, and the resulting implied exchange ratio reference ranges must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied equity value reference ranges or the implied exchange ratio reference ranges without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying, and conclusions represented by, Barclays’ opinion.

 

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Overview of Analyses

Barclays performed various analyses in arriving at its opinion. In its analyses, Barclays evaluated standalone ONEOK Partners and ONEOK, and Pro Forma ONEOK. Barclays focused its analyses on the relative valuation of standalone ONEOK Partners and Pro Forma ONEOK and the implied exchange ratios based on per LP unit and per share equity value reference ranges determined using various valuation methodologies. “LP units” means units representing limited partner interests, including where applicable the ONEOK Partners common units. Barclays concluded that a relative valuation of ONEOK Partners and ONEOK is of limited relevance in the proposed transaction because ONEOK owns the general partner interest and a significant limited partner interest in ONEOK Partners and ONEOK does not own any midstream operating assets, or other significant assets, other than its interests in ONEOK Partners.

The following is a summary of the material financial analyses performed by Barclays with respect to ONEOK Partners in preparing Barclays’ opinion:

 

•

discounted cash flows analysis;

 

•

selected comparable company trading analysis; and

 

•

selected precedent transactions analysis.

Each of these methodologies was used to generate per LP unit equity value reference ranges for ONEOK Partners common units. Additionally, for a further point of reference, Barclays analyzed public equity research analyst price targets, which were used for informational purposes only and were not included in the exchange ratio analysis. For the purposes of its analyses, Barclays determined an implied equity value of $52.96 per ONEOK Partners common unit based on the exchange ratio of 0.9850x shares of ONEOK common stock per ONEOK Partners common unit and ONEOK’s closing price on January 30, 2017, which was then compared to the per LP unit equity value reference ranges for ONEOK Partners common units determined in each of the above valuation methodologies.

The following is a summary of the material financial analyses performed by Barclays with respect to ONEOK in preparing Barclays’ opinion:

 

•

discounted cash flows analysis; and

 

•

selected comparable company trading analysis.

Each of these methodologies was used to generate per share equity value reference ranges for shares of ONEOK common stock. Additionally, for a further point of reference, Barclays analyzed public equity research analyst price targets, which were used for informational purposes only and were not included in the exchange ratio analysis.

The following is a summary of the material financial analyses performed by Barclays with respect to Pro Forma ONEOK in preparing Barclays’ opinion:

 

•

discounted cash flows analysis; and

 

•

selected comparable company trading analysis.

Each of these methodologies was used to generate per share equity value reference ranges for Pro Forma ONEOK Shares.

The Pro Forma ONEOK per share equity value reference ranges and the ONEOK Partners per LP unit equity value reference ranges for the discounted cash flow analysis and selected comparable company trading analysis described above were then also used to generate implied exchange ratios, which were then compared to the exchange ratio of 0.9850x shares of ONEOK common stock per ONEOK Partners common unit in the proposed transaction. This analysis is further described in the section below entitled “—Exchange Ratio Analysis.”

 

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In addition to analyzing the value of ONEOK Partners common units, shares of ONEOK common stock and Pro Forma ONEOK Shares, Barclays also provided additional background and perspective to the ONEOK Partners conflicts committee for informational purposes only, by analyzing and reviewing: (i) the daily historical closing prices of ONEOK Partners common units and shares of ONEOK common stock compared to those of certain public companies, (ii) the exchange ratios implied by the historical closing unit prices of ONEOK Partners common units and shares of ONEOK common stock for the three-year period up to January 30, 2017; (iii) certain publicly available information related to selected related-party merger transactions to calculate the premiums paid by the acquirers to the acquired company’s unitholders; (iv) an illustrative “has-gets” analysis of the pro forma impact of the proposed transaction on the implied per share market values of Pro Forma ONEOK compared to the implied per LP unit market values of ONEOK Partners and the implied per share market values of ONEOK, in each case using the Expected Case Projections (as defined below); and (v) the pro forma impact of the proposed transaction on the current and future financial performance of Pro Forma ONEOK using projected estimates for 2017 through 2021 for dividends per share and cash available for distributions (“CAFD”) per share as provided by ONEOK and ONEOK Partners GP management in the Projections and as published by equity research analysts. The term CAFD, when used in reference to the Projections, has the same meaning as ONEOK “cash flow available for dividends,” or Pro Forma ONEOK “distributable cash flow,” as such terms are described in the section entitled “—Unaudited Projected Financial Information.”

Discounted Cash Flow Analysis

In order to estimate the present values of ONEOK Partners common units, shares of ONEOK common stock and Pro Forma ONEOK Shares, Barclays performed Discounted Cash Flow Analyses for each of ONEOK Partners, ONEOK and Pro Forma ONEOK. A discounted cash flow analysis is a traditional valuation methodology used to derive an intrinsic valuation of an asset by calculating the “present value” of estimated future cash flows of the asset; in this case, the “present value” of the estimated future distributable cash flows (“DCF”) of ONEOK Partners common units and the estimated after-tax CAFD of each of shares of ONEOK common stock and Pro Forma ONEOK Shares, as applicable, plus the estimated value of the ONEOK Partners common units, shares of ONEOK common stock and Pro Forma ONEOK Shares, as applicable, at the end of the forecast period based on the estimated DCF or distributions of the applicable entity in the final year of such period (the “terminal value”). “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those estimated future DCF and estimated CAFD, as appropriate, by a range of discount rates that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns, the time value of money, and other appropriate factors.

In deriving its Discounted Cash Flow Analysis valuation range for each of ONEOK Partners, ONEOK and Pro Forma ONEOK, Barclays considered three sets of financial projections (collectively, the “Cases”) for each of ONEOK Partners, ONEOK and Pro Forma ONEOK: the first two Cases were the Expected Case Projections and the Flat Case Projections (each as presented in the section entitled “—Unaudited Projected Financial Information,” other than the Flat Case Projections for Pro Forma ONEOK, which are described in the following paragraph, and, as described therein, the Cases differ by reason of using differing ONEOK management assumptions regarding commodity prices), and the third Case was based on Wall Street analyst estimates through 2020 and 2021 estimates were assumed to be equal to 2020 estimates (“Research Case Projections”). In the case of Pro Forma ONEOK, Barclays also took into account the Expected Synergies and the Expected Benefits of the proposed transaction, as provided by management of ONEOK and ONEOK Partners GP.

With regard to the Pro Forma ONEOK Flat Case Projections and the Pro Forma ONEOK Research Case Projections, Barclays considered the adjustments used to derive the Pro Forma ONEOK Expected Case Projections from the ONEOK and ONEOK Partners Expected Case Projections, in each case as prepared by management of ONEOK and ONEOK Partners GP. Barclays then applied the same adjustments to the ONEOK and ONEOK Partners Flat Case Projections to derive the Pro Forma ONEOK Flat Case Projections. Barclays also applied these adjustments to the ONEOK and ONEOK Partners Research Case Projections to derive the Pro Forma ONEOK Research Case Projections.

 

 

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In addition, with respect to the Expected Case Projections of CAFD for Pro Forma ONEOK used by Barclays in this analysis and the subsequent analyses, based on Barclays’ professional judgment and expertise, Barclays made certain adjustments to such projections to reflect certain assumptions as to Pro Forma ONEOK’s projected debt, interest expense payments and selling, general and administrative expenses, in each case in the projected periods. These adjustments to the Expected Case Projections for Pro Forma ONEOK’s CAFD described in the section entitled “—Unaudited Projected Financial Information,” resulted in Expected Case Pro Forma ONEOK’s CAFD being reduced to $1,354 million in 2017, $1,637 million in 2018, $1,794 million in 2019, $1,915 million in 2020 and $2,002 million in 2021.

To calculate ONEOK Partners’ estimated implied per LP unit equity value reference range for each of the three Cases, Barclays considered (i) projected DCF per ONEOK Partners common unit for 2017 through 2021 and (ii) the terminal value at the end of the forecast period, as of December 31, 2021. These projected cash flows and terminal value were discounted back to present value using selected discount rates based on Barclays’ professional judgment and expertise, taking into account cost of equity capital rates for ONEOK Partners and the comparable companies utilized in the Selected Comparable Company Trading Analysis described below. Barclays used a discount rate range of 9.50%-11.50% in its Discounted Cash Flow Analysis of ONEOK Partners; this discount rate range was chosen by Barclays based on its professional judgment and expertise, including its analysis of the cost of equity for ONEOK Partners, taking into account a Capital Asset Pricing Model (“CAPM”) analysis of ONEOK Partners and its selected comparable companies utilized in the Selected Comparable Company Trading Analysis. The terminal value of the ONEOK Partners common units was calculated by utilizing a DCF yield reference range of 7.65%-8.65% and ONEOK Partners’ 2021 estimated DCF per ONEOK Partners common unit in each of the three Cases. This DCF yield reference range was selected based on Barclays’ professional judgment and expertise, taking into account DCF yields of ONEOK Partners’ comparable companies utilized in the Selected Comparable Company Trading Analysis and considering ONEOK Partners’ 2017E DCF yield of 8.15% utilizing Wall Street research analyst DCF yield estimates. The results of Barclays’ Discounted Cash Flow Analysis for ONEOK Partners are summarized in the table at the end of this section.

To calculate ONEOK’s estimated implied per share equity value reference range for each of the three Cases, Barclays considered (i) projected CAFD per share of ONEOK common stock for 2017 through 2021 and (ii) the terminal value at the end of the forecast period, as of December 31, 2021. These projected cash flows and terminal value were discounted back to present value using selected discount rates based on Barclays’ professional judgment and expertise, taking into account cost of equity capital rates for ONEOK and the comparable companies utilized in the Selected Comparable Company Trading Analysis described below. Barclays used a discount rate range of 11.50%-13.50% in its Discounted Cash Flow Analysis of ONEOK; this discount rate range was chosen by Barclays based on its professional judgment and expertise, including its analysis of the cost of equity for ONEOK, taking into account a CAPM analysis of ONEOK and its selected comparable companies utilized in the Selected Comparable Company Trading Analysis. The terminal value of the shares of ONEOK common stock was calculated by utilizing a CAFD yield reference range of 5.00%-6.00% and ONEOK’s 2021 estimated CAFD per share in each of the three Cases. This CAFD yield reference range was selected based on Barclays’ professional judgment and expertise, taking into account CAFD yields of ONEOK’s comparable companies utilized in the Selected Comparable Company Trading Analysis and considering ONEOK’s 2017E CAFD yield of 5.47%, utilizing Wall Street research analyst CAFD yield estimates. The results of Barclays’ Discounted Cash Flow Analysis for ONEOK are summarized in the table at the end of this section.

To calculate Pro Forma ONEOK’s estimated implied per share equity value reference range for each of the three Cases, Barclays considered (i) projected CAFD per Pro Forma ONEOK Share for 2017 through 2021, (ii) the terminal value at the end of the forecast period, as of December 31, 2021, and (iii) the value of the Expected Synergies remaining at the end of the forecast period. Per share values considered status quo shares of ONEOK common stock plus shares of ONEOK common stock to be issued to ONEOK Partners unaffiliated unitholders as part of the proposed transaction based on the exchange ratio, in each case using estimated shares and units outstanding per the applicable period contained in the Cases. These projected cash flows, terminal

 

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value and the remaining value of the Expected Synergies were discounted back to present value using selected discount rates based on Barclays’ professional judgment and expertise, taking into account cost of equity capital rates for ONEOK and the comparable companies utilized in the Selected Comparable Company Trading Analysis described below. Barclays used a discount rate range of 9.50%-11.50% in its Discounted Cash Flow Analysis of Pro Forma ONEOK; this discount rate range was chosen by Barclays based on its professional judgment and expertise, including its analysis of the cost of equity for Pro Forma ONEOK, taking into account a CAPM analysis of Pro Forma ONEOK and its selected comparable companies utilized in the Selected Comparable Company Trading Analysis. The terminal value of the Pro Forma ONEOK Shares was calculated by utilizing a CAFD yield reference range of 5.00%-6.00% and Pro Forma ONEOK’s 2021 estimated CAFD per share in each of the three Cases, which was adjusted to exclude the tax savings expected to result from the step-up in the tax basis in the ONEOK Partners assets as a result of the proposed transaction, as the remaining value of the Expected Synergies was calculated separately. This CAFD yield reference range was selected based on Barclays’ professional judgment and expertise, taking into account CAFD yields of Pro Forma ONEOK’s comparable companies utilized in the Selected Comparable Company Trading Analysis, and considering ONEOK’s 2017E CAFD yield of 5.47%, utilizing Wall Street research analyst CAFD yield estimates. The results of Barclays’ Discounted Cash Flow Analysis for Pro Forma ONEOK are summarized in the table below.

Summary of Discounted Cash Flow Analyses

 

		Implied per LP Unit / Share Equity Value Reference Range
Company:		Expected Case Projections				Flat Case Projections				Research Case Projections
ONEOK Partners		$	44.50-$51.50			$	39.50-$46.00			$	40.50-$47.00
ONEOK		$	44.00-$54.00			$	38.50-$47.00			$	40.50-$49.50
Pro Forma ONEOK		$	63.50-$77.00			$	53.50-$64.50			$	56.00-$67.50

Barclays noted that the implied equity value of $52.96 per ONEOK Partners common unit, based on the proposed transaction exchange ratio of 0.9850x shares of ONEOK common stock per ONEOK Partners common unit and ONEOK’s closing price on January 30, 2017, was higher than the implied per LP unit equity value reference ranges yielded by the ONEOK Partners discounted cash flow analysis. Barclays also noted that the closing ONEOK common stock share price of $53.77 on January 30, 2017 was (i) higher than the implied per share equity value reference range yielded by the ONEOK discounted cash flow analysis in the Flat Case Projections and the Research Case Projections, (ii) within the implied per share equity value reference range yielded by the ONEOK discounted cash flow analysis in the Expected Case Projections, (iii) below the implied per share equity value reference range yielded by the Pro Forma ONEOK discounted cash flow analysis in the Expected Case Projections and the Research Case Projections, and (iv) within the implied per share equity value reference range yielded by the Pro Forma ONEOK discounted cash flow analysis in the Flat Case Projections.

Selected Comparable Company Trading Analysis

In order to assess how the public market values equity ownership of similar publicly traded companies, Barclays reviewed and compared specific financial and operating data relating to ONEOK Partners, ONEOK and Pro Forma ONEOK to those of companies selected by Barclays based on Barclays’ experience with midstream MLPs and C-Corporations. None of the companies selected were subsequently excluded in conducting this analysis. Barclays selected the comparable companies listed below because their businesses and operating profiles are reasonably similar to each of ONEOK Partners, ONEOK and Pro Forma ONEOK. However, because no selected comparable company is exactly the same as ONEOK Partners, ONEOK or Pro Forma ONEOK, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company trading analysis. Accordingly, Barclays also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of each of ONEOK Partners, ONEOK and Pro Forma ONEOK, and the respective selected comparable companies that

 

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could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between each of ONEOK Partners, ONEOK and Pro Forma ONEOK, and the respective companies included in the selected comparable company trading analysis. Based upon these judgments, Barclays selected the ranges noted below for each of ONEOK Partners, ONEOK and Pro Forma ONEOK.

Barclays selected the following nine comparable midstream companies for its analysis of ONEOK Partners:

 

•

Enbridge Energy Partners, L.P.

 

•

Energy Transfer Partners, L.P. (pro forma after giving effect to the November 2016 combination with Sunoco Logistics Partners L.P.)

 

•

Enterprise Products Partners L.P.

 

•

Williams Partners, L.P.

 

•

EnLink Midstream Partners, LP

 

•

MPLX, L.P.

 

•

DCP Midstream, LP

 

•

Enable Midstream Partners, LP

 

•

Western Gas Partners, LP

In its Selected Comparable Company Trading Analysis of ONEOK Partners, Barclays considered the following metrics: latest quarter annualized cash distributions (“LQA Distributions”) to holders of units representing limited partner interests (“LP units”), projected DCF per LP unit (“DCF / LP Unit”) for 2017 and 2018, and 2017 estimated EBITDA. These metrics were chosen based on Barclays’ professional judgment and expertise, taking into account the importance of such metrics in the financial analysis of ONEOK Partners’ selected comparable companies.

In the case of LQA Distributions to holders of LP units and 2017 and 2018 DCF / LP unit, ONEOK Partners’ Wall Street research analyst projections were applied to a low and high yield range based on the comparable companies to derive an implied per LP unit equity value reference range. In the case of 2017 estimated EBITDA, ONEOK Partners’ Wall Street research analyst projections were applied to a low and high multiple range to derive an implied enterprise value reference range.

The implied enterprise value reference range was adjusted by net debt, general partner equity value and noncontrolling interests to derive an implied aggregate equity value reference range. General partner equity value was calculated by subtracting the market value of ONEOK Partners units beneficially owned by ONEOK and ONEOK Partners GP as of January 30, 2017 from the total market value of ONEOK equity as of January 30, 2017. The implied aggregate equity value reference range was divided by ONEOK Partners common units outstanding as of September 30, 2016 per the merger agreement (which included the ONEOK Partners Class B units on an as-converted basis) to derive an implied per LP unit equity value reference range. The multiples applied in the analysis are summarized below.

 

		ONEOK Partners Selected Comparable Company Multiple / Yield Range								ONEOK Partners
Metric:		Low				High
LQA Distribution			8.75	%			6.75	%			7.42	%
2017E DCF / LP Unit			8.75	%			6.75	%			8.15	%
2018E DCF / LP Unit			8.75	%			6.75	%			8.74	%
2017E EBITDA			12.5x				14.5x				13.2x

 

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Barclays considered the four metrics above; the weighting of each in its Selected Comparable Company Trading Analysis of ONEOK Partners is based on Barclays’ professional judgment and expertise. The results of Barclays’ Selected Comparable Company Trading Analysis for ONEOK Partners are summarized in the table at the end of this section.

Barclays selected the following seven comparable midstream companies for its analysis of ONEOK:

 

•

Nustar GP Holdings, LLC

 

•

The Williams Companies, Inc.

 

•

Plains GP Holdings, L.P.

 

•

Energy Transfer Equity, L.P.

 

•

EnLink Midstream, LLC

 

•

Tallgrass Energy GP, LP

 

•

Western Gas Equity Partners, LP

In its Selected Comparable Company Trading Analysis of ONEOK, Barclays considered the following metrics: latest quarter annualized dividends (“LQA Dividends”) to shareholders and projected cash available for distributions per share (“CAFD / Share”) for 2017 and 2018. These metrics were chosen based on Barclays’ professional judgment and expertise, taking into account the importance of such metrics in the financial analysis of ONEOK’s selected comparable companies.

For all of the selected metrics, ONEOK’s Wall Street research analyst projections were applied to a low and high yield range based on the comparable companies to derive an implied per share equity value reference range. The multiples applied in the analysis are summarized below.

 

		ONEOK Selected Comparable Company Multiple / Yield Range								ONEOK
Metric:		Low				High
LQA Dividend			6.50	%			4.50	%			4.58	%
2017E CAFD / Share			7.50	%			5.50	%			5.47	%
2018E CAFD / Share			8.50	%			6.50	%			5.50	%

Barclays considered the three metrics above; the weighting of each in its Selected Comparable Company Trading Analysis of ONEOK is based on Barclays’ professional judgment and expertise. The results of Barclays’ Selected Comparable Company Trading Analysis for ONEOK are summarized in the table at the end of this section.

Barclays selected the following seven comparable midstream companies for its analysis of Pro Forma ONEOK:

 

•

Kinder Morgan, Inc.

 

•

The Williams Companies, Inc.

 

•

Plains GP Holdings, L.P.

 

•

Enbridge, Inc.

 

•

TransCanada Corporation

 

•

Enterprise Product Partners L.P.

 

•

Targa Resources Corp.

 

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In its Selected Comparable Company Trading Analysis of Pro Forma ONEOK, Barclays considered the following metrics: LQA Dividends to shareholders, 2017 and 2018 projected CAFD / Share, and 2017 estimated EBITDA. These metrics were chosen based on Barclays’ professional judgment and expertise, taking into account the importance of such metrics in the financial analysis of Pro Forma ONEOK’s selected comparable companies.

In the case of LQA Dividends to shareholders, at the direction of the ONEOK Partners conflicts committee, based on ONEOK’s stated intentions to increase the dividends for Pro Forma ONEOK from the third quarter of 2017 onwards to $0.745 per share, such $0.745 per share dividend was annualized. This annualized pro forma dividend was applied to a low and high yield range based on the comparable companies to derive an implied per share equity value reference range. In the case of 2017 and 2018 CAFD / Share, Pro Forma ONEOK’s projected metrics based on Wall Street research analyst projections were adjusted to take into account the Expected Synergies and the Expected Benefits of the proposed transaction, as provided by management of ONEOK and ONEOK Partners GP. They were then applied to a low and high yield range based on the comparable companies to derive an implied per share equity value reference range. In the case of 2017 estimated EBITDA, Pro Forma ONEOK’s projected EBITDA based on Wall Street research analyst projections was adjusted to take into account the Expected Synergies and the Expected Benefits of the proposed transaction, as provided by management of ONEOK and ONEOK Partners GP. It was then applied to a low and high multiple range to derive an implied enterprise value reference range. The implied enterprise value reference range was adjusted by net debt and noncontrolling interests to derive an implied aggregate equity value reference range. The implied aggregate equity value reference range was divided by diluted Pro Forma ONEOK Shares, considering status quo diluted shares of ONEOK common stock as of January 30, 2017 per the merger agreement plus shares of ONEOK common stock to be issued to ONEOK Partners unaffiliated unitholders in the proposed transaction based on the exchange ratio, calculated using ONEOK Partners common units outstanding as of September 30, 2016 per the merger agreement, to derive an implied per share equity value reference range. The multiples applied in the analysis are summarized below.

 

		Pro Forma ONEOK Selected Comparable Company Multiple / Yield Range
Metric:		Low				High
LQA Dividend			6.50	%			4.50	%
2017E CAFD / Share			8.00	%			6.00	%
2018E CAFD / Share			8.50	%			6.50	%
2017E EBITDA			12.0x				14.0x

Barclays considered the four metrics above; the weighting of each in its Selected Comparable Company Trading Analysis of Pro Forma ONEOK is based on Barclays’ professional judgment and expertise. The results of Barclays’ Selected Comparable Company Trading Analysis for ONEOK are summarized in the table at the end of this section.

Summary of Selected Comparable Company Trading Analyses

 

Company:		Implied per LP Unit / Share Equity Value Reference Range
ONEOK Partners		$	37.50-$52.50
ONEOK		$	35.00-$54.00
Pro Forma ONEOK		$	45.00-$65.00

Barclays noted that the implied equity value of $52.96 per ONEOK Partners common unit, based on the proposed transaction exchange ratio of 0.9850x shares of ONEOK common stock per ONEOK Partners common

 

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unit and ONEOK’s closing price on January 30, 2017, was higher than the implied per LP unit equity value reference range yielded by the ONEOK Partners selected comparable company trading analysis. Barclays also noted that the closing ONEOK common stock share price of $53.77 on January 30, 2017 was within the implied per share equity value reference ranges yielded by the ONEOK selected comparable company trading analysis and the Pro Forma ONEOK selected comparable company trading analysis.

Exchange Ratio Analysis

Barclays also compared the exchange ratio to the exchange ratio reference ranges implied by the ONEOK Partners and Pro Forma ONEOK per LP unit / per share equity value reference ranges calculated in the analyses set forth above in this section, with the high end and low end of such ranges calculated as follows: (a) the high end of the implied exchange ratio reference range was calculated by dividing the applicable high value of the ONEOK Partners implied per LP unit equity value reference range by the applicable low value of the Pro Forma ONEOK implied per share equity value reference range, and (b) the low end of the implied exchange ratio reference range was calculated by dividing the applicable low value of the ONEOK Partners implied per LP unit equity value reference range by the applicable high value of the Pro Forma ONEOK implied per share equity value reference range. The implied exchange ratio reference ranges are summarized below.

 

Valuation Methodology:		Implied Exchange Ratio Reference Range
Discounted Cash Flow Analysis – Expected Case Projections			0.5779x-0.8110x
Discounted Cash Flow Analysis – Flat Case Projections			0.6124x-0.8598x
Discounted Cash Flow Analysis – Research Case Projections			0.6000x-0.8393x
Selected Comparable Company Trading Analysis			0.5769x-1.1667x

Barclays noted that the exchange ratio of 0.9850x is above the exchange ratio reference range implied by all three Cases in the Discounted Cash Flow Analysis and within the exchange ratio reference range implied by the Selected Comparable Company Trading Analysis.

 

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Selected Precedent Transactions Analysis

Barclays conducted its Selected Precedent Transactions Analysis to provide an additional reference range for the valuation of ONEOK Partners common units. Barclays reviewed and compared the purchase prices and financial multiples paid in selected other transactions that Barclays deemed relevant based on its experience with merger and acquisition transactions, specifically in the midstream industry. Barclays chose such merger transactions based on, among other things, the similarity of the applicable companies to ONEOK Partners and ONEOK with respect principally to size and operational focus and because the targets involved were MLPs or limited liability companies. None of the transactions selected based on the criteria were subsequently excluded in conducting this analysis. The following list sets forth the transactions analyzed based on such characteristics:

 

Acquirer		Target		Announcement Date
Sunoco Logistics Partners, L.P.		Energy Transfer Partners, L.P.		November 2016
TransCanada Corporation		Columbia Pipeline Partners, L.P.		November 2016
Energy Transfer Partners, L.P.		PennTex Midstream Partners, L.P.		October 2016
American Midstream Partners, L.P.		JP Energy Partners, L.P.		October 2016
MPLX, L.P.		Markwest Energy Partners, L.P.		July 2015
Crestwood Equity Partners, L.P.		Crestwood Midstream Partners, L.P.		May 2015
Energy Transfer Partners, L.P.		Regency Energy Partners, L.P.		January 2015
Targa Resources Partners, L.P.		Atlas Pipeline Partners, L.P.		October 2014
Enterprise Products Partners L.P.		Oiltanking Partners, L.P.		October 2014
Access Midstream Partners, L.P.		Williams Partners, L.P.		June 2014
Regency Energy Partners, L.P.		PVR Partners, L.P.		October 2013
Inergy Midstream, L.P.		Crestwood Midstream Partners, L.P.		May 2013
Kinder Morgan Energy Partners, L.P.		Copano Energy, L.L.C.		January 2013
Enterprise Products Partners L.P.		Duncan Energy Partners, L.P.		April 2011
Enterprise Products Partners L.P.		TEPPCO Partners, L.P.		June 2009
Plains All-American Pipeline, L.P.		Pacific Energy Partners, L.P.		June 2006
Valero, L.P.		Kaneb Pipe Line Partners, L.P.		November 2004
Enterprise Products Partners L.P.		Gulfterra Energy Partners, L.P.		December 2003
Kinder Morgan Energy Partners, L.P.		Santa Fe Pacific Pipeline Partners, L.P.		October 1997

Using publicly available information, Barclays calculated and analyzed the multiples of enterprise value to last twelve month (“LTM”) EBITDA, represented by the prices paid in selected precedent transactions. Barclays observed that the multiples of enterprise value to LTM EBITDA represented by the selected precedent transactions ranged from 8.1x to 25.9x with a median of 15.0x, and based on the judgments noted below, Barclays selected a range of 14.5x to 16.5x from such results.

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences between the businesses, operations, financial conditions and prospects of ONEOK Partners, and the entities included in the selected precedent transactions analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transactions analysis would not be particularly meaningful in the context of considering the proposed transaction. Barclays therefore made qualitative judgments concerning differences between the characteristics of the selected precedent transactions and the proposed transaction which would affect the acquisition values of the selected target companies and ONEOK Partners.

ONEOK Partners’ Expected Case Projections 2016 EBITDA was applied to the multiple range above to derive an implied enterprise value reference range. This range was adjusted by net debt, general partner equity value and noncontrolling interests to derive an implied aggregate equity value reference range. General partner equity value was calculated by subtracting the market value of ONEOK Partners units owned by ONEOK as of January 30, 2017 from the total market value of ONEOK equity as of January 30, 2017. The implied aggregate equity value reference range was divided by diluted ONEOK Partners common units outstanding as of

 

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September 30, 2016 per the merger agreement (which included the ONEOK Partners Class B units on an as-converted basis) to derive an implied per LP unit equity value reference range. The results of Barclays’ Selected Precedent Transaction Analysis for ONEOK Partners are summarized below.

Summary of Selected Precedent Transaction Analysis

 

Company:		Implied per LP Unit / Share Equity Value Reference Range
ONEOK Partners		$	44.00-$56.00

Barclays noted that the implied equity value of $52.96 per ONEOK Partners common unit, based on the proposed transaction exchange ratio of 0.9850x shares of ONEOK common stock per ONEOK Partners common unit and ONEOK’s closing price on January 30, 2017, was within the implied per LP unit equity value reference range yielded by the ONEOK Partners selected precedent transaction analysis.

Analysis of Equity Research Analyst Price Targets

Barclays reviewed and compared, as of January 30, 2017, the publicly available price targets of ONEOK Partners common units and shares of ONEOK common stock published by equity research analysts associated with various Wall Street firms, of which there were seven for ONEOK Partners and five for ONEOK (including Barclays’ equity research analyst price targets for each of ONEOK Partners and ONEOK). Barclays’ analysis of public equity research analyst price targets was used for a further point of reference only. Equity research analyst target prices were used for informational purposes only and were not included in the exchange ratio analysis. The research analysts’ price targets per ONEOK Partners common unit ranged from $40.00 to $47.00 and per share of ONEOK common stock ranged from $45.00 to $61.00. The publicly available share price targets published by such equity research analysts do not necessarily reflect the current market trading prices for ONEOK Partners common units or shares of ONEOK common stock and these estimates are subject to uncertainties, including future financial performance of ONEOK Partners and ONEOK and future market conditions. Barclays noted that the implied equity value of $52.96 per ONEOK Partners common unit based on the proposed transaction exchange ratio of 0.9850x shares of ONEOK common stock per ONEOK Partners common unit and ONEOK’s closing price on January 30, 2017, was higher than the equity analyst per LP unit equity value reference range of $40.00 to $47.00 for ONEOK Partners common units. Barclays also noted that ONEOK’s closing price of $53.77 on January 30, 2017 was within the equity analyst per share equity value reference range of $45.00 to $61.00 for shares of ONEOK common stock.

Historical Common Unit Trading Analysis

To illustrate the historical trading prices of ONEOK Partners common units and shares of ONEOK common stock, Barclays considered historical data with regard to the trading prices for each of ONEOK Partners common units and shares of ONEOK common stock over the three-year period ending January 30, 2017. Barclays also compared such data with the relative trading prices of ONEOK Partners’ peers, ONEOK’s peers and the Alerian MLP Index (“AMZ”) during the same period. ONEOK Partners’ peers considered in the Historical Common Unit Trading Analysis are the same peers to ONEOK Partners considered in the Selected Comparable Company Trading Analysis. ONEOK’s peers considered in the Historical Common Unit Trading Analysis are the same peers to ONEOK considered in the Selected Comparable Company Trading Analysis. Barclays highlighted relative trading performances of all such groups over various time windows. All data points should be considered in the context of the entire analysis.

 

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The results of Barclays’ Historical Common Unit Trading Analysis are summarized below.

 

% Change:		ONEOK Partners				ONEOK				ONEOK Partners Peers				ONEOK Peers				AMZ
Last 3 Years			(18	%)			(9	%)			(19	%)			(9	%)			(29	%)
Last 2 Years			3	%			22	%			(26	%)			(21	%)			(26	%)
Last 12 Months			56	%			116	%			39	%			43	%			29	%
Last 6 Months			6	%			20	%			4	%			8	%			4	%
Last 90 Days			7	%			12	%			9	%			2	%			9	%
Last 30 Days			(1	%)			(6	%)			4	%			(1	%)			4	%

Premiums Analysis

Barclays reviewed and analyzed the premiums implied by both the “Heads-Up” exchange ratio, which reflects the implied exchange ratio of ONEOK Partners common unit trading prices and ONEOK common stock trading prices without considering any adjustments, such as a share price premium, as of January 30, 2017 and the exchange ratio of 0.9850x relative to the historical exchange ratios implied by both ONEOK Partners and ONEOK trading prices and volume weighted average prices (“VWAP”) over various time periods. Barclays also reviewed and analyzed the premiums implied by both the “Heads-Up” exchange ratio and the exchange ratio relative to the premiums paid in selected precedent merger transactions.

The premiums implied by the “Heads-Up” exchange ratio and the exchange ratio relative to historical exchange ratios are summarized in the table below.

 

						Implied Premium to Historical Exchange Ratios
Date:		“Heads-Up” Exchange Ratio				“Heads-Up” Exchange Ratio 0.7915x $42.56 / LP Unit				Transaction Exchange Ratio 0.9850x $52.96 / LP Unit
Current			0.7915x				—				24	%
5-Days Prior			0.7801x				1	%			26	%
10-Days Prior			0.7956x				(1	%)			24	%
30-Days Prior			0.7455x				6	%			32	%
60-Days Prior			0.8068x				(2	%)			22	%
5-Day VWAP			0.7957x				(1	%)			24	%
10-Day VWAP			0.7928x				(0	%)			24	%
20-Day VWAP			0.7806x				1	%			26	%
30-Day VWAP			0.7745x				2	%			27	%
60-Day VWAP			0.7881x				0	%			25	%
1-Year VWAP			0.8909x				(11	%)			11	%
2-Year VWAP			0.9148x				(13	%)			8	%
3-Year VWAP			0.9229x				(14	%)			7	%

Barclays noted that the exchange ratio of 0.9850x reflected a premium to any of the historical “Heads-Up” exchange ratios analyzed over the past three years.

For the premiums implied by the exchange ratio of 0.9850x relative to the premiums paid in selected precedent merger transactions, Barclays analyzed and reviewed publicly available information related to fifteen selected related-party merger transactions where the target was an MLP or limited liability company. None of the transactions selected based on the criteria were subsequently excluded in conducting this analysis. Barclays calculated the premiums paid by the acquirers to the acquired company’s equity holders. Barclays considered the below transactions in its analysis.

 

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Acquirer		Target		Announcement Date
Sunoco Logistics Partners, L.P.		Energy Transfer Partners, L.P.		November 2016
Transocean Ltd.		Transocean Partners, L.L.C.		August 2016
SemGroup Corp.		Rose Rock Midstream, L.P.		May 2016
Targa Resources Corporation		Targa Resources Partners, L.P.		November 2015
The Williams Companies, Inc.		Williams Partners, L.P.		May 2015
Crestwood Equity Partners, L.P.		Crestwood Midstream Partners, L.P.		May 2015
Tesoro Logistics, L.P.		QEP Midstream Partners, L.P.		April 2015
Energy Transfer Partners, L.P.		Regency Energy Partners, L.P.		January 2015
Kinder Morgan, Inc.		Kinder Morgan Energy Partners, L.P.		August 2014
Kinder Morgan, Inc.		Kinder Morgan Management, L.L.C.		August 2014
Kinder Morgan, Inc.		El Paso Pipeline Partners, L.P.		August 2014
Access Midstream Partners, L.P.		Williams Partners, L.P.		June 2014
Plains All American Pipeline, L.P.		PAA Natural Gas Storage, L.P.		August 2013
Enterprise Products Partners L.P.		Duncan Energy Partners, L.P.		February 2011
Enterprise Products Partners L.P.		TEPPCO Partners, L.P.		June 2009

Using publicly available information, Barclays calculated and analyzed the implied premiums paid considering the per LP unit offer price relative to the targets’ prior 1-day, 30-day and 60-day closing prices. The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences between the businesses, operations, financial conditions and prospects of ONEOK Partners, and the entities included in the selected precedent transactions premiums paid analysis. The results of the selected precedent transactions premiums paid analysis are summarized below.

 

		Selected Related-Party Merger Transactions Premiums Paid
		1-Day				30-Day				60-Day
Mean			13.4	%			15.6	%			21.3	%
Median			13.2	%			10.5	%			17.2	%
High			36.1	%			60.0	%			97.4	%
Low			(0.2	%)			1.6	%			(14.1	%)

Barclays reviewed the premiums implied by the exchange ratio of 0.9850x and the closing price of ONEOK on January 30, 2017 compared to the January 30, 2017 and prior 30-day and 60-day closing prices of ONEOK Partners. These premiums were 24.4%, 23.9% and 35.2% above ONEOK Partners’ current, 30-day prior and 60-day prior closing prices, respectively. Barclays noted that these premiums were above the corresponding mean and median premiums analyzed in the selected precedent transactions premiums paid analysis.

Illustrative Has-Gets Analysis

Barclays analyzed and reviewed the projected pro forma impact of the proposed transaction from the perspective of both ONEOK Partners common unitholders and ONEOK shareholders. The pro forma impact considered in the Illustrative Has-Gets Analysis is based on the implied per LP unit or per share value uplift and is a result of tax synergies and a simplified corporate structure, as anticipated by management of ONEOK and ONEOK Partners GP and reflected in the Expected Synergies and the Expected Benefits, in each case excluding the impact of capital gains taxes or other taxable gains or losses to individual ONEOK Partners unitholders. Barclays’ Illustrative Has-Gets Analysis considered the exchange ratio of 0.9850x and Expected Case Projections.

In its Illustrative Has-Gets Analysis with respect to ONEOK Partners common units, Barclays calculated the implied status quo unit prices of a ONEOK Partners common unit over the period from 2017 through 2021. Barclays calculated these unit prices by dividing Expected Case Projections DCF per LP Unit for 2017 through

 

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2021 by an assumed DCF yield, based on ONEOK Partners’ 2017E DCF yield of 8.15%, utilizing Wall Street research analyst DCF estimates. The implied status quo prices of ONEOK Partners common units are summarized in the table at the end of this section.

In its Illustrative Has-Gets Analysis with respect to shares of ONEOK common stock, Barclays calculated the implied status quo share prices of a share of ONEOK common stock over the period from 2017 through 2021. Barclays calculated these share prices by dividing Expected Case Projections CAFD per share for 2017 through 2021 by an assumed CAFD yield, based on ONEOK’s 2017E CAFD yield of 5.47%, utilizing Wall Street research analyst CAFD estimates. The implied status quo prices of shares of ONEOK common stock are summarized in the table at the end of this section.

In its Illustrative Has-Gets Analysis with respect to Pro Forma ONEOK Shares, Barclays calculated the implied share prices of a Pro Forma ONEOK Share over the period from 2017 through 2021. Barclays calculated these share prices by dividing Pro Forma CAFD based on Expected Case Projections per share by an assumed CAFD yield, based on ONEOK’s 2017E CAFD yield of 5.47%, utilizing Wall Street research analyst CAFD estimates. The implied prices of Pro Forma ONEOK Shares are summarized in the table at the end of this section.

To consider the implied value uplift of the proposed transaction from the perspective of a status quo ONEOK Partners unitholder, Barclays applied the exchange ratio of 0.9850x to the implied Pro Forma ONEOK Share prices. To consider the implied value uplift of the proposed transaction from the perspective of a status quo ONEOK shareholder, Barclays assumed each share of ONEOK common stock would remain a single Pro Forma ONEOK Share following the proposed transaction. The implied value uplifts on both status quo ONEOK Partners common units and shares of ONEOK common stock are summarized in the table below.

Summary of Illustrative Has-Gets Analysis

 

Impact on Status Quo ONEOK Partners Common Units
		2017				2018				2019				2020				2021
Implied Status Quo ONEOK Partners Common Unit Price		$	41.24			$	46.68			$	49.63			$	51.97			$	53.57
Implied Pro Forma ONEOK Common Stock Share Price*		$	63.73			$	76.94			$	84.33			$	90.13			$	94.20
Implied Value Uplift		$	22.49			$	30.26			$	34.70			$	38.16			$	40.63
%			55	%			65	%			70	%			73	%			76	%
Impact on Status Quo ONEOK Common Stock
		2017				2018				2019				2020				2021
Implied Status Quo ONEOK Common Stock Share Price		$	57.43			$	51.64			$	58.42			$	59.32			$	66.14
Implied Pro Forma ONEOK Common Stock Share Price		$	64.70			$	78.11			$	85.62			$	91.50			$	95.63
Implied Value Uplift		$	7.26			$	26.48			$	27.20			$	32.18			$	29.50
%			13	%			51	%			47	%			54	%			45	%

 

*-	Assumes 0.9850x exchange ratio.

 

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Pro Forma Merger Consequences Analysis

Barclays analyzed and reviewed the pro forma impact of the proposed transaction on the current and future financial performance of Pro Forma ONEOK using projected estimates for 2017 through 2021 for dividends per share and CAFD per share. Barclays analyzed and reviewed the pro forma impact of the proposed transact
ion using each of the Expected Case, the Flat Case and the Research Case. Barclays’ analysis considered the 0.9850x exchange ratio and, in the case of Pro Forma ONEOK, at the direction of the ONEOK Partners conflicts committee, based on ONEOK’s stated intentions to increase the dividends for Pro Forma ONEOK from the third quarter of 2017 onwards to $0.745 per share, an annualized $0.745 quarterly pro forma dividend for 2017 and sensitized post-2017 annual dividend increases based on guidance from ONEOK management. Annual dividend increases of 8%, 9% and 10% after 2017 with respect to Pro Forma ONEOK were considered in the analysis. In the case of Pro Forma ONEOK, Barclays also took into account the Expected Synergies and the Expected Benefits of the proposed transaction, as provided by management of ONEOK and ONEOK Partners GP. The results of Barclays’ Pro Forma Merger Consequences Analysis are summarized below.

 

		Pro Forma Merger Consequences (8% annual dividend increases)
		Metric:		Expected Case Projections				Flat Case Projections				Research Case Projections
Pro Forma Impact to ONEOK Partners		2017E DCF / LP Unit			3.7	%			2.6	%			5.8	%
		2018E DCF / LP Unit			10.6	%			8.4	%			10.1	%
		2019E DCF / LP Unit			14.0	%			10.3	%			12.4	%
		2020E DCF / LP Unit			16.5	%			11.4	%			12.9	%
		2021E DCF / LP Unit			18.3	%			12.2	%			13.5	%
		2017E Distribution / LP Unit			(8.0	%)			(7.1	%)			(8.0	%)
		2018E Distribution / LP Unit			(5.9	%)			(2.2	%)			(5.4	%)
		2019E Distribution / LP Unit			(4.6	%)			1.9	%			(2.7	%)
		2020E Distribution / LP Unit			(4.2	%)			5.6	%			0.1	%
		2021E Distribution / LP Unit			(3.5	%)			6.0	%			8.1	%
Pro Forma Impact to ONEOK		2017E CAFD / Share			12.6	%			8.4	%			26.6	%
		2018E CAFD / Share			51.3	%			45.5	%			40.3	%
		2019E CAFD / Share			46.6	%			40.8	%			47.0	%
		2020E CAFD / Share			54.4	%			47.3	%			35.9	%
		2021E CAFD / Share			45.0	%			40.0	%			36.5	%
		2017E Dividend / Share			19.7	%			21.1	%			14.9	%
		2018E Dividend / Share			21.9	%			28.2	%			12.8	%
		2019E Dividend / Share			22.0	%			32.9	%			10.8	%
		2020E Dividend / Share			20.5	%			36.0	%			8.8	%
		2021E Dividend / Share			18.5	%			34.9	%			17.5	%

 

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		Pro Forma Merger Consequences (9% annual dividend increases)
		Metric:		Expected Case Projections				Flat Case Projections				Research Case Projections
Pro Forma Impact to ONEOK Partners		2017E DCF / LP Unit			3.7	%			2.6	%			5.8	%
		2018E DCF / LP Unit			10.6	%			8.4	%			10.1	%
		2019E DCF / LP Unit			14.0	%			10.3	%			12.4	%
		2020E DCF / LP Unit			16.4	%			11.3	%			12.8	%
		2021E DCF / LP Unit			18.2	%			12.0	%			13.3	%
		2017E Distribution / LP Unit			(8.0	%)			(7.1	%)			(8.0	%)
		2018E Distribution / LP Unit			(5.1	%)			(1.3	%)			(4.5	%)
		2019E Distribution / LP Unit			(2.9	%)			3.8	%			(0.8	%)
		2020E Distribution / LP Unit			(1.5	%)			8.6	%			2.9	%
		2021E Distribution / LP Unit			0.1	%			5.5	%			8.2	%
Pro Forma Impact to ONEOK		2017E CAFD / Share			12.6	%			8.4	%			26.6	%
		2018E CAFD / Share			51.3	%			45.5	%			40.3	%
		2019E CAFD / Share			46.6	%			40.8	%			47.0	%
		2020E CAFD / Share			54.3	%			47.2	%			35.8	%
		2021E CAFD / Share			44.8	%			39.8	%			36.3	%
		2017E Dividend / Share			19.7	%			21.1	%			14.9	%
		2018E Dividend / Share			23.0	%			29.4	%			13.9	%
		2019E Dividend / Share			24.2	%			35.4	%			12.8	%
		2020E Dividend / Share			23.9	%			39.8	%			11.8	%
		2021E Dividend / Share			23.0	%			34.2	%			17.5	%

 

		Pro Forma Merger Consequences (10% annual dividend increases)
		Metric:		Expected Case Projections				Flat Case Projections				Research Case Projections
Pro Forma Impact to ONEOK Partners		2017E DCF / LP Unit			3.7	%			2.6	%			5.8	%
		2018E DCF / LP Unit			10.6	%			8.4	%			10.1	%
		2019E DCF / LP Unit			14.0	%			10.3	%			12.4	%
		2020E DCF / LP Unit			16.4	%			11.3	%			12.7	%
		2021E DCF / LP Unit			18.0	%			11.9	%			13.1	%
		2017E Distribution / LP Unit			(8.0	%)			(7.1	%)			(8.0	%)
		2018E Distribution / LP Unit			(4.2	%)			(0.3	%)			(3.6	%)
		2019E Distribution / LP Unit			(1.1	%)			5.7	%			1.0	%
		2020E Distribution / LP Unit			1.2	%			8.6	%			5.8	%
		2021E Distribution / LP Unit			3.8	%			5.5	%			8.2	%
Pro Forma Impact to ONEOK		2017E CAFD / Share			12.6	%			8.4	%			26.6	%
		2018E CAFD / Share			51.3	%			45.5	%			40.3	%
		2019E CAFD / Share			46.6	%			40.8	%			46.9	%
		2020E CAFD / Share			54.2	%			47.1	%			35.7	%
		2021E CAFD / Share			44.6	%			39.7	%			36.1	%
		2017E Dividend / Share			19.7	%			21.1	%			14.9	%
		2018E Dividend / Share			24.2	%			30.6	%			14.9	%
		2019E Dividend / Share			26.5	%			37.9	%			14.9	%
		2020E Dividend / Share			27.3	%			39.9	%			14.9	%
		2021E Dividend / Share			27.6	%			34.2	%			17.5	%

Barclays noted that under the Expected Case Projections, assuming 8% annual dividend increases, the proposed transaction would be dilutive to ONEOK Partners unitholders throughout the projection period on a distribution per LP unit basis. Barclays noted that under the Expected Case Projections, assuming 9% annual

 

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dividend increases, the proposed transaction would be dilutive to ONEOK Partners unitholders from 2017 through 2020 and accretive in 2021 on a distribution per LP unit basis. Barclays noted that under the Expected Case Projections, assuming 10% annual dividend increases, the proposed transaction would be dilutive to ONEOK Partners unitholders from 2017 through 2019 and accretive from 2020 through 2021 on a distribution per LP unit basis.

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The ONEOK Partners conflicts committee selected Barclays because of its familiarity with ONEOK Partners and ONEOK, and because of Barclays’ qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, knowledge of the industries in which ONEOK Partners and ONEOK operate, as well as substantial experience in transactions comparable to the proposed transaction.

Barclays is acting as financial advisor to the ONEOK Partners conflicts committee in connection with the proposed transaction. As compensation for its services in connection with the proposed transaction, ONEOK Partners will pay Barclays a fee of $6.5 million, conditioned upon and payable upon closing of the proposed transaction (the “Transaction Fee”). In addition, ONEOK Partners paid Barclays a fee of $1 million upon delivery of the opinion (the “Opinion Fee”). The Opinion Fee was not contingent upon the conclusion of Barclays’ opinion and the Opinion Fee is creditable against the Transaction Fee upon the closing of the proposed transaction. In addition, the ONEOK Partners conflicts committee of ONEOK Partners, in its sole discretion, will consider whether to cause ONEOK Partners GP to pay Barclays, based on the ONEOK Partners conflicts committee’s assessment of the quality and quantity of work performed, and value added by, Barclays in connection with its engagement with the ONEOK Partners conflicts committee, an additional discretionary fee of up to $1 million (payable with the Transaction Fee). In addition, ONEOK Partners GP has agreed to reimburse Barclays for a portion of its reasonable expenses incurred in connection with the proposed transaction (not to exceed $100,000 without the prior consent of the ONEOK Partners conflicts committee) and to indemnify Barclays for certain liabilities that may arise out of its engagement by the ONEOK Partners conflicts committee and the rendering of Barclays’ opinion as set forth in Barclays’ engagement letter with the ONEOK Partners conflicts committee. Barclays has performed various investment banking and financial services for ONEOK Partners, ONEOK and their affiliates in the past, and Barclays expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, since January 2014, Barclays has performed the following investment banking and financial services: (i) joint bookrunner on ONEOK Partners’ 2014 $737 million follow-on equity offering; (ii) agent on ONEOK Partners’ $650 million 2014 “at-the-market” equity offering program, (iii) co-manager on ONEOK Partners’ March 2015 $800 million senior notes offering; (iv) joint lead arranger with respect to ONEOK Partners’ 2016 $1 billion term loan agreement and (v) we are currently a lender under ONEOK Partners’ existing $2.4 billion and ONEOK’s existing $300 million revolving credit agreements as of January 31, 2014, as amended, and in connection with ONEOK Partners’ term loan agreement. In respect of these services, Barclays received fees since January 2014 of (a) approximately $3.5 million to $4 million from ONEOK Partners; and (b) less than $0.25 million from ONEOK. On or about January 7, 2017, Barclays disclosed to the ONEOK Partners conflicts committee the nature of its relationship and engagements for ONEOK Partners, ONEOK and their affiliates since January 1, 2014 and the amount and nature of the fees it received from such parties, and such relationships and fees were discussed at various times from January 9 to January 18, 2017 by the ONEOK Partners conflicts committee with ONEOK Partners GP management and the ONEOK Partners conflicts committee’s independent legal counsel. On January 31, 2017, Barclays also reiterated to the ONEOK Partners conflicts committee the nature of its relationship and engagements for ONEOK Partners, ONEOK and their affiliates since January 1, 2014 and the amount and nature of the fees it received from such parties. See the section entitled “—Background of the Merger” beginning on page 34 of this joint proxy statement/prospectus.

 

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Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays and its affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of ONEOK Partners and ONEOK and their respective affiliates for Barclays’ own account and for the accounts of Barclays’ customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

No Appraisal Rights

Neither ONEOK shareholders nor ONEOK Partners common unitholders are entitled to appraisal rights in connection with the merger under applicable law or contractual appraisal rights under ONEOK’s organizational documents, the ONEOK Partners partnership agreement or the merger agreement.

Listing of ONEOK Common Stock to be Issued in the Merger; Delisting and Deregistration of ONEOK Partners Common Units

ONEOK expects to obtain approval to list, on the NYSE, the ONEOK common stock to be issued pursuant to the merger agreement, which approval is a condition to the merger. Upon completion of the merger, ONEOK Partners common units currently listed on the NYSE will cease to be listed on the NYSE and will be subsequently deregistered under the Exchange Act.

Accounting Treatment

The merger will be accounted for in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 810, Consolidation (ASC 810). Because ONEOK controls ONEOK Partners both before and after the merger, the changes in ONEOK’s ownership interest in ONEOK Partners resulting from the merger will be accounted for as an equity transaction, and no gain or loss will be recognized in ONEOK’s consolidated income statement. In addition, the tax effects of the merger are reported as adjustments to other assets, deferred income taxes and additional paid-in capital consistent with ASC 740, Income Taxes (ASC 740).

Interests of Certain Persons in the Merger

In considering the recommendations of the ONEOK Partners conflicts committee and the ONEOK Partners board, ONEOK Partners common unitholders should be aware that some of the executive officers and directors of ONEOK Partners GP have interests in the transaction that may differ from, or may be in addition to, the interests of ONEOK Partners common unitholders generally. These interests may present such directors and executive officers with actual or potential conflicts of interests, and these interests, to the extent material, are described below. The ONEOK Partners conflicts committee and the ONEOK Partners board were aware of these interests and considered them, among other matters, prior to providing their respective approvals and recommendations with respect to the merger agreement.

In considering the recommendations of the ONEOK special committee, ONEOK shareholders should be aware that some of the executive officers and directors of ONEOK have interests in the transaction that may differ from, or may be in addition to, the interests of ONEOK shareholders generally. These interests may present such directors and executive officers with actual or potential conflicts of interests, and these interests, to the extent material, are described below. The ONEOK special committee was aware of these interests and considered them, among other matters, prior to providing its approval and recommendation with respect to the merger agreement.

 

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Common Directors and Executive Officers

Julie H. Edwards, John W. Gibson, Steven J. Malcolm, Jim W. Mogg and Terry K. Spencer, directors of ONEOK Partners GP, are also directors of ONEOK. The following executive officers of ONEOK Partners GP are executive officers of ONEOK:

 

•

Terry K. Spencer is President and Chief Executive Officer of ONEOK and ONEOK Partners;

 

•

Robert F. Martinovich is Executive Vice President, Chief Administrative Officer of ONEOK and ONEOK Partners;

 

•

Walter S. Hulse III is Executive Vice President – Strategic Planning and Corporate Affairs of ONEOK and ONEOK Partners;

 

•

Stephen W. Lake is Senior Vice President, General Counsel and Assistant Secretary of ONEOK and ONEOK Partners;

 

•

Derek S. Reiners is Senior Vice President, Chief Financial Officer and Treasurer of ONEOK and ONEOK Partners;

 

•

Sheppard F. Miers III is Vice President and Chief Accounting Officer of ONEOK and ONEOK Partners;

 

•

Wesley J. Christensen is Senior Vice President – Operations of ONEOK and ONEOK Partners; and

 

•

Kevin L. Burdick is Executive Vice President – Chief Commercial Officer of ONEOK and ONEOK Partners.

Each of these individuals will retain their position with ONEOK following the merger.

Indemnification and Insurance

The merger agreement provides that from and after the effective time of the merger, ONEOK and ONEOK Partners (as the surviving entity of the merger) jointly and severally agree to indemnify and hold harmless against any reasonable cost or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages or liabilities, penalties and amounts paid in settlement in connection with any actual or threatened legal proceeding, and provide advancement of expenses with respect to each of the foregoing to, any person who is now, or has been or becomes at any time prior to the effective time of the merger, an officer, director or employee of ONEOK Partners or any of its subsidiaries or ONEOK Partners GP, to the fullest extent permitted under applicable law.

In addition, ONEOK and ONEOK Partners (continuing as a wholly owned subsidiary of ONEOK) will honor the provisions regarding elimination of liability of officers and directors, indemnification of officers, directors and employees and advancement of expenses contained in the organizational documents of ONEOK Partners and ONEOK Partners GP immediately prior to the effective time of the merger and ensure that the organizational documents of ONEOK Partners and ONEOK Partners GP or any of their respective successors or assigns, if applicable, will, for a period of six years following the effective time, contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors, officers, employees and agents of ONEOK Partners and ONEOK Partners GP than are presently set forth in such organizational documents. In addition, ONEOK will maintain in effect for six years from the effective time of the merger ONEOK’s current directors’ and officers’ liability insurance policies covering acts or omissions occurring at or prior to the effective time of the merger with respect to such indemnified persons, provided that in no event will ONEOK be required to expend more than an amount per year equal to 300% of current annual premiums paid by ONEOK for such insurance.

Directors and Executive Officers of ONEOK after the Merger

The directors and executive officers of ONEOK prior to the merger are expected to continue as directors and executive officers of ONEOK after the merger.

 

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Security Ownership of Directors and Executive Officers

The following table sets forth the beneficial ownership of the directors and executive officers of ONEOK and ONEOK Partners in (i) ONEOK Partners common units prior to the merger, (ii) ONEOK common stock prior to the merger and (iii) ONEOK common stock after giving effect to the merger, in each case as of March 2, 2017.

 

Name of Beneficial Owner		ONEOK Partners Common Units 1				Percentage of ONEOK Partners Common Units Outstanding 2				ONEOK Common Stock Prior to the Merger 3				Percentage of shares of ONEOK Common Stock Outstanding 4				ONEOK Common Stock after the Merger 5				Percentage of ONEOK Common Stock Outstanding after the Merger
Kevin L. Burdick			—				—				31,307				*				31,307				*
Brian L. Derksen			—				—				7,604				*				7,604				*
Julie H. Edwards			—				—				45,810				*				45,810				*
John W. Gibson			105,000				*				1,107,398				*				1,210,823				*
Walter S. Hulse III			—				—				15,000				*				15,000				*
Stephen W. Lake			—				—				21,883				*				21,883				*
Randall J. Larson			—				—				7,070				*				7,070				*
Steven J. Malcolm			—				—				16,380				*				16,380				*
Robert F. Martinovich 6			288				*				181,216				*				181,499				*
Kevin S. McCarthy 7			—				—				5,804				*				5,804				*
Jim W. Mogg			2,000				*				59,525				*				61,495				*
Pattye L. Moore			1,400				*				107,176				*				108,555				*
Gary D. Parker 8			—				—				122,802				*				122,802				*
Derek S. Reiners 9			—				—				37,905				*				37,905				*
Eduardo A. Rodriguez			—				—				23,681				*				23,681				*
Terry K. Spencer			27,400				*				283,232				*				310,221				*
Wesley J. Christensen			—				—				24,477				*				24,477				*
Sheppard F. Miers III			8,800				—				28,863				*				37,531				*
Michael G. Hutchinson			2,000				*				—				—				1,970				*
Gary N. Peterson			19,284				*				—				—				18,994				*
Craig F. Strehl			9,400				*				—				—				9,259				*
All directors and executive officers as a group			175,572				*				2,127,133				*				2,300,090				*

 

*	Less than 1 percent.

 

1

Includes ONEOK Partners common units held by members of the family of the director or executive officer for which the director or executive officer has sole or shared voting or investment power. Does not include approximately 41.3 million ONEOK Partners common units or approximately 73 million Class B units (which represent 100 percent of the outstanding Class B units) of ONEOK Partners, held by ONEOK and its subsidiaries, which, when combined with the 2 percent general partner interest held by a subsidiary of ONEOK, represent an approximate 41.2 percent interest in ONEOK Partners at March 2, 2017, with respect to which each officer and director disclaims beneficial ownership.

 

2	The percent of ONEOK Partners voting securities owned is based on the outstanding common units on March 2, 2017.

 

3

Includes shares of ONEOK common stock held by members of the family of the director or executive officer for which the director or executive officer has sole or shared voting or investment power, shares of common stock held in ONEOK’s Direct Stock Purchase and Dividend Reinvestment Plan, shares held through ONEOK’s 401(k) Plan, shares held through ONEOK’s Profit Sharing Plan and shares of phantom stock credited to a director’s account under ONEOK’s Deferred Compensation Plan for Non-Employee Directors.

 

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4	The percent of ONEOK voting securities owned is based on outstanding shares of ONEOK common stock on March 2, 2017.

 

5	Rounded down to the nearest whole unit where applicable.

 

6

Excludes 11,418 shares of ONEOK common stock, the receipt of which was deferred by Mr. Martinovich upon vesting in January 2011, under the deferral provisions of ONEOK’s Equity Compensation Plan (the “ONEOK ECP”), which shares will be issued to Mr. Martinovich upon the later of July 1, 2018 or his separation of service from ONEOK.

 

7

Mr. McCarthy is managing partner for KA Fund Advisors, LLC (“KAFA”) and is co-managing partner of the energy marketable securities activities at Kayne Anderson Capital Advisors, LP (“KACALP”). He serves as chairman and chief executive officer of the Kayne Anderson MLP Investment Company (KYN), Kayne Anderson Energy Total Return Fund (KYE), Kayne Anderson Midstream/Energy Fund (KMF), and Kayne Anderson Energy Development Company (KED) (together, the “Public Funds”) which, together with other accounts for which Mr. McCarthy also has investment responsibility, held an aggregate of 1,331,721 shares of ONEOK common stock and 8,579,712 ONEOK Partners common units as of February 1, 2017. In connection with his appointment to the ONEOK board on December 29, 2015, KAFA has implemented controls designed to ensure that Mr. McCarthy will not possess investment or voting power for the ONEOK common stock and ONEOK Partners common units held by the Public Funds and such other accounts. Other private funds and accounts (the “Private Funds”) managed by KACALP also own shares of ONEOK and ONEOK Partners common units, but Mr. McCarthy does not have any day-to-day responsibilities with respect to the investment activities of such Private Funds. Mr. McCarthy disclaims beneficial ownership of the shares of ONEOK common stock and ONEOK Partners common units held by the Public Funds and Private Funds, except to the extent of his pecuniary interest therein.

 

8	Includes 1,880 shares of ONEOK common stock held by Mrs. Gary D. Parker. Mr. Parker disclaims beneficial ownership of these shares.

 

9	Excludes 6,537 shares of ONEOK common stock, the receipt of which was deferred by Mr. Reiners upon vesting in February 2015, under the deferral provisions of the ONEOK ECP, which shares will be issued to Mr. Reiners upon his separation of service from ONEOK.

 

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THE MERGER AGREEMENT

This section of this joint proxy statement/prospectus describes the material provisions of the merger agreement, but does not describe all of the terms of the merger agreement and may not contain all of the information about the merger agreement that is important to you. The following summary is qualified by reference to the complete text of the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein. You are urged to read the full text of the merger agreement because it is the legal document that governs the merger.

The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. Factual disclosures about ONEOK, ONEOK Partners or any of their respective subsidiaries or affiliates contained in this joint proxy statement/prospectus or their respective public reports filed with the SEC may supplement, update or modify the factual disclosures contained in the merger agreement and described in this summary. The representations, warranties, and covenants contained in the merger agreement were made only for purposes of the merger agreement, as of a specific date. These representations were made solely for the benefit of the parties to the merger agreement and may be subject to important qualifications and limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purpose of allocating risk between parties to the merger agreement rather than the purpose of establishing these matters as facts, and may apply standards of materiality in ways that are different from those generally applicable to reports filed with the SEC or from what may be viewed as material by investors. These representations do not survive completion of the merger. For the foregoing reasons, one should not read these representations or any description thereof as characterizations of the actual state of facts or condition of ONEOK or ONEOK Partners, which are disclosed in the other information provided elsewhere in this joint proxy statement/prospectus or incorporated by reference herein.

The Merger; Effective Time; Closing

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Merger Sub, a wholly owned subsidiary of ONEOK, will merge with and into ONEOK Partners, with ONEOK Partners continuing as the surviving entity and a wholly owned subsidiary of ONEOK.

At the effective time of the merger, each ONEOK Partners common unit issued and outstanding will be converted into the right to receive 0.985 of a share of ONEOK common stock, other than (i) ONEOK Partners common units that are owned immediately prior to the effective time of the merger by ONEOK Partners, which will be automatically cancelled and will cease to exist, and (ii) ONEOK Partners common units owned immediately prior to the effective time of the merger by ONEOK Partners GP, ONEOK or any subsidiaries of ONEOK (other than ONEOK Partners), which will remain outstanding, unaffected by the merger. General Partner Percentage Interests (as defined in the ONEOK Partners partnership agreement) and the Class B units will also remain outstanding, unaffected by the merger.

ONEOK will not issue any fractional shares in the merger. Instead, each holder of ONEOK Partners common units that are converted pursuant to the merger agreement who otherwise would have received a fraction of a ONEOK share will be entitled to receive, in lieu thereof, a cash payment (without interest and rounded up to the nearest whole cent) in an amount equal to the product of (i) the average trading prices of the ONEOK common stock over the five-day period prior to the closing date of the merger and (ii) the fraction of the ONEOK share that such holder would otherwise be entitled to receive pursuant to the merger agreement.

The effective time of the merger will occur at such time as ONEOK and ONEOK Partners cause a certificate of merger to be duly filed with the Secretary of State of the State of Delaware or at such later date or time as may be agreed by ONEOK and ONEOK Partners in writing and specified in the certificate of merger.

 

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The closing of the merger will take place on the second business day after the satisfaction or waiver of the conditions set forth in the merger agreement (other than conditions that by their nature are to be satisfied at the closing but subject to the satisfaction or waiver of those conditions), or at such other place, date and time as ONEOK and ONEOK Partners may agree.

Conditions to Completion of the Merger

ONEOK and ONEOK Partners may not complete the merger unless each of the following conditions is satisfied or waived:

 

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ONEOK Partners has obtained ONEOK Partners unitholder approval;

 

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ONEOK has obtained ONEOK shareholder approval;

 

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no restraint is in effect enjoining, restraining, preventing or prohibiting the completion of the transactions contemplated by the merger agreement or making the completion of the transactions contemplated by the merger agreement illegal;

 

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the registration statement of which this joint proxy statement/prospectus forms a part must have been declared effective under the Securities Act and no stop order suspending the effectiveness of the registration statement will have been issued and no proceedings for that purpose will have been initiated or threatened by the SEC;

 

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the ONEOK common stock deliverable to the ONEOK Partners common unitholders as contemplated by the merger agreement must have been approved for listing on the NYSE, subject to official notice of issuance; and

 

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ONEOK has received an opinion of counsel to the effect that the merger should not be treated as a transaction governed by Section 351(a) of the Code.

The obligations of ONEOK and Merger Sub to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

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the representations and warranties in the merger agreement of ONEOK Partners and ONEOK Partners GP:

 

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with respect to capitalization of ONEOK Partners, ONEOK Partners’ and ONEOK Partners GP’s authority to execute the merger agreement and complete the transactions contemplated by the merger agreement, and the applicable unitholder voting requirements for approval of the merger agreement and transactions contemplated thereby, being true and correct in all respects, in each case, both when made and at and as of the date of the closing, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date);

 

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with respect to all other representations and warranties, being true and correct at and as of the closing, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth in any individual representation or warranty, other than with respect to the filing of documents with the SEC, undisclosed liabilities, internal controls, absence of certain changes or events, information supplied for inclusion in this joint proxy statement/prospectus, and for purposes of the definition of a ONEOK Partners material contract) does not have, and would not reasonably be expected to have, individually or in the aggregate a “material adverse effect” on ONEOK Partners;

 

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ONEOK Partners and ONEOK Partners GP having performed in all material respects all obligations required to be performed by each of them under the merger agreement; and

 

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the receipt by ONEOK of an officer’s certificate signed on behalf of ONEOK Partners and ONEOK Partners GP by an executive officer of ONEOK Partners GP certifying that the preceding conditions have been satisfied.

The obligation of ONEOK Partners to effect the merger is subject to the satisfaction or waiver of the following additional conditions:

 

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the representations and warranties in the merger agreement of ONEOK:

 

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with respect to capitalization, its authority to execute the merger agreement and complete the transactions contemplated by the merger agreement, and the applicable shareholder voting requirements for approval of the issuance of ONEOK common stock in connection with the merger, being true and correct in all respects, in each case, both when made and at and as of the date of the closing, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date);

 

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with respect to all other representations and warranties, being true and correct at and as of the closing, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth in any individual representation or warranty, other than with respect to the filing of documents with the SEC, undisclosed liabilities, internal controls, absence of certain changes or events, information supplied for inclusion in this joint proxy statement/prospectus, and for purposes of the definition of an ONEOK material contract) does not have, and would not reasonably be expected to have, individually or in the aggregate a “material adverse effect” on ONEOK;

 

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ONEOK and Merger Sub having performed in all material respects all obligations required to be performed by each of them under the merger agreement; and

 

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the receipt by ONEOK Partners of an officer’s certificate signed on behalf of ONEOK by an executive officer of ONEOK certifying that the preceding conditions have been satisfied.

For purposes of the merger agreement, the term “material adverse effect” means, when used with respect to a person, any change, condition, effect, event or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of such person and its subsidiaries, taken as a whole; provided, however, that any adverse changes, conditions, effects, events or occurrences resulting from or due to any of the following shall be disregarded in determining whether there has been a material adverse effect: (i) changes, conditions, effects, events or occurrences generally affecting the United States or global economy, the financial, credit, debt, securities or other capital markets or political, legislative or regulatory conditions or changes in the industries in which such person operates; (ii) the announcement or pendency of the merger agreement or the transactions contemplated by the merger agreement or, except specifically for purposes of determining whether there is a breach of the representations and warranties made by ONEOK, ONEOK Partners and ONEOK Partners GP that the execution, delivery and performance of the merger agreement and the completion of the merger and the other transactions contemplated by the merger agreement do not violate or conflict with such party’s organizational documents, applicable laws or certain contracts, and the satisfaction of the closing conditions set forth in the merger agreement (and described above under “—Conditions to Completion of the Merger”) with respect to such representations and warranties, the performance of the merger agreement; (iii) any change in the market price or trading volume of the limited partnership interests, shares of common stock or other equity securities of such person (it being understood and agreed that the foregoing does not preclude any other party to the merger agreement from asserting that any facts or occurrences giving rise to or contributing to such change that are not otherwise excluded from the definition of material adverse effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect);

 

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(iv) acts of war, terrorism or other hostilities (or the escalation of the foregoing) or natural disasters or other force majeure events; (v) changes in any applicable laws or regulations applicable to such person or applicable accounting regulations or principles or the interpretation thereof; (vi) any legal proceedings commenced by or involving any current or former member, partner or shareholder of such person or any of its subsidiaries (or in the case of ONEOK, ONEOK Partners) (on their own or on behalf of such person or any of its subsidiaries or in the case of ONEOK Partners, ONEOK Partners) arising out of or related to the merger agreement or the transactions contemplated by the merger agreement; (vii) changes, effects, events or occurrences generally affecting the prices of oil, gas, natural gas, NGLs or other commodities; (viii) any failure of a person to meet any internal or external projections, forecasts or estimates of revenues, earnings or other financial or operating metrics for any period (it being understood and agreed that the foregoing does not preclude any other party to the merger agreement from asserting that any facts or occurrences giving rise to or contributing to such failure that are not otherwise excluded from the definition of material adverse effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect); and (ix) with respect to ONEOK only, any effect to the extent resulting from a change, condition, effect, event or occurrence that has a material adverse effect on ONEOK Partners and its subsidiaries; provided, however, that changes, effects, events or occurrences referred to in clauses (i), (iv), (v) and (vii) above shall be considered for purposes of determining whether there has been or would reasonably be expected to be a material adverse effect if and to the extent such changes, effects, events or occurrences has had or would reasonably be expected to have a disproportionate adverse effect on such person and its subsidiaries, taken as a whole, as compared to other companies of similar size operating in the industries in which such person and its subsidiaries operate.

For purposes of the merger agreement, except where expressly provided otherwise, ONEOK Partners, ONEOK Partners GP and their subsidiaries are not considered subsidiaries of ONEOK or affiliates of ONEOK or any of its subsidiaries.

Representations and Warranties

The merger agreement contains representations and warranties by ONEOK, on the one hand, and ONEOK Partners and ONEOK Partners GP, on the other hand. These representations and warranties have been made solely for the benefit of the other party to the merger agreement and:

 

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may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

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have been qualified by disclosures that were made to the other party in connection with the negotiation of the merger agreement, which disclosures may not be reflected in the merger agreement; and

 

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may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors.

Accordingly, these representations and warranties should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this joint proxy statement/prospectus and in the documents incorporated by reference into this joint proxy statement/prospectus, which may include information that updates, modifies or qualifies the information set forth in the representations and warranties.

The representations and warranties made by both ONEOK, on the one hand, and ONEOK Partners and ONEOK Partners GP, on the other hand relate to, among other things:

 

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organization, standing and similar organizational matters;

 

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capital structure;

 

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due authorization of the merger agreement and the transactions contemplated by the merger agreement, absence of any conflicts with third parties created by such transactions and the voting requirements for such transactions;

 

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required consents and approvals of governmental entities in connection with the transactions contemplated by the merger agreement;

 

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documents filed with the SEC, financial statements included in those documents since December 31, 2013;

 

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no undisclosed liabilities or obligations since December 31, 2015;

 

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maintenance of a system of internal controls;

 

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absence of changes or events since December 31, 2015;

 

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legal proceedings;

 

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compliance with applicable laws and permits;

 

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information supplied in connection with this joint proxy statement/prospectus and the registration statement of which it is a part;

 

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taxes and other tax matters;

 

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material contracts;

 

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benefit plans;

 

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environmental matters;

 

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property;

 

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intellectual property;

 

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opinions of financial advisors;

 

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brokers and other advisors;

 

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insurance;

 

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the Investment Company Act of 1940; and

 

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no other representations and warranties.

Additional representations and warranties made only by ONEOK to ONEOK Partners relate to, among other things, ownership of ONEOK Partners common units.

Conduct of Business Prior to Closing

Under the merger agreement, each of ONEOK and ONEOK Partners has undertaken certain covenants that place restrictions on it and its respective subsidiaries from the date of the merger agreement until the earlier of the termination of the merger agreement in accordance with its terms and the effective time of the merger, unless the other party gives its prior written consent (which consent cannot be unreasonably withheld, conditioned or delayed).

Subject to certain exceptions, unless ONEOK consents in writing (which consent cannot be unreasonably withheld, conditioned or delayed), ONEOK Partners GP and ONEOK Partners have agreed, and will cause their respective subsidiaries, to conduct its business in the ordinary course of business consistent with past practice.

Subject to certain exceptions, unless ONEOK Partners consents in writing (which consent cannot be unreasonably withheld, conditioned or delayed), ONEOK will not, and will not permit its subsidiaries to:

 

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amend ONEOK’s or any of its subsidiaries’ organizational documents (whether by merger, consolidation, conversion or otherwise) in any manner that would reasonably be expected to (a) prevent

 

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or in any material respect hinder, impede or delay the ability of the parties to satisfy any of the conditions to or the completion of the merger or the other transactions contemplated by the merger agreement, or (b) adversely affect the terms of ONEOK’s shares in any material respect;

 

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declare, authorize, set aside or pay any dividend or distribution payable in cash, stock or property in respect of any of ONEOK’s capital stock, other than regular quarterly cash dividends on the ONEOK common stock in the ordinary course of business consistent with past practice and other than dividends or distributions with a record date after the effective time of the merger; provided, however, that nothing contained in the merger agreement prohibits ONEOK from increasing the quarterly cash dividend on the ONEOK common stock;

 

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split, combine, divide, subdivide, reverse split, reclassify, recapitalize or effect any other similar transaction with respect to any of ONEOK’s capital stock or other equity interests;

 

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solely with respect to ONEOK, adopt a plan or agreement of complete or partial liquidation, dissolution or restructuring or a plan or agreement of reorganization under any bankruptcy or similar law;

 

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waive, release, assign, settle or compromise any claim, action or proceeding, including any state or federal regulatory proceeding seeking damages or injunction or other equitable relief, which waiver, release, assignment, settlement or compromise would reasonably be expected to result in an ONEOK material adverse effect; or

 

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agree, in writing or otherwise, to take any of the foregoing actions, or take any action or agree, in writing or otherwise, to take any action, including proposing or undertaking any merger, consolidation or acquisition, in each case, that would reasonably be expected to prohibit, prevent or in any material respect hinder, impede or delay the ability of the parties to satisfy any of the conditions to or the completion of the merger or the other transactions contemplated by the merger agreement.

No Solicitation by ONEOK of Alternative Proposals

The merger agreement contains detailed provisions prohibiting ONEOK from seeking any proposal for an acquisition of 25% or more ONEOK’s assets or equity that would reasonably be expected to prevent or materially impede, interfere with, hinder or delay the completion of the transactions contemplated by the merger agreement (an “alternative proposal”). Under these “no solicitation” covenants, ONEOK has agreed that it will not, and will cause its subsidiaries and use reasonable best efforts to cause its representatives not to, directly or indirectly, except as permitted by the merger agreement:

 

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solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquiries or any proposals that constitute the submission of an alternative proposal; or

 

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enter into any acquisition agreement with respect to any alternative proposal (other than a confidentiality agreement containing customary provisions).

ONEOK has agreed that it will, and will cause its subsidiaries and use reasonable best efforts to cause its representatives to, cease and cause to be terminated any discussions or negotiations with any persons conducted prior to the execution of the merger agreement with respect to an alternative proposal and immediately prohibit any access by any person to confidential information relating to a possible alternative proposal.

Following the date of the merger agreement but prior to obtaining the ONEOK shareholder approval, if ONEOK has received a written alternative proposal that the ONEOK board or the ONEOK special committee believes is bona fide and the ONEOK board or the ONEOK special committee, after consultation with its financial advisors and outside legal counsel, determines in good faith that such alternative proposal constitutes or could reasonably be expected to lead to or result in a superior proposal and failure to take such action would be inconsistent with its duties under the applicable law, and such alternative proposal did not result from a material

 

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breach of the “no solicitation” covenants in the merger agreement, then the merger agreement permits ONEOK to furnish information with respect to ONEOK and its subsidiaries to the person making such alternative proposal and participate in discussions or negotiations regarding such alternative proposal; provided, however, that (i) ONEOK and its subsidiaries will not, and will use their reasonable best efforts to cause their respective representatives not to, disclose any non-public information to such person unless ONEOK has, or first enters into a confidentiality agreement with such person and ONEOK provides ONEOK Partners and ONEOK Partners GP any non-public information that was not previously provided or made available to ONEOK Partners and ONEOK Partners GP prior to or substantially concurrently with providing or making available such non-public information to such other person.

ONEOK Partners GP Recommendation and ONEOK Partners Adverse Recommendation Change

Under the merger agreement, ONEOK Partners, acting through the ONEOK Partners board or the ONEOK Partners conflicts committee, has agreed to recommend that ONEOK Partners unitholders vote in favor of the merger proposal (the “ONEOK Partners board recommendation”). Subject to the provisions described below, the merger agreement provides that the ONEOK Partners board and ONEOK Partners GP, including the ONEOK Partners board or the ONEOK Partners conflicts committee, directly or indirectly, will not:

 

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withdraw, modify or qualify, propose publicly to withdraw, modify or qualify, in any manner adverse to ONEOK, the ONEOK Partners board recommendation; or

 

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fail to include the ONEOK Partners board recommendation in this joint proxy statement/prospectus.

Each of the foregoing actions is referred to as an “ONEOK Partners adverse recommendation change.”

Notwithstanding these restrictions, before ONEOK Partners obtains its unitholder approval, the ONEOK Partners board or the ONEOK Partners conflicts committee may make a change in recommendation or terminate the merger agreement if in response to an intervening event and following consultation with outside legal counsel, the ONEOK Partners board or the ONEOK Partners conflicts committee determines that the failure to make a change in recommendation would be inconsistent with its fiduciary duties under applicable law.

The merger agreement further provides that the ONEOK Partners board or the ONEOK Partners conflicts committee may not make a change in recommendation or terminate the merger agreement unless: (i) ONEOK Partners has provided prior written notice to ONEOK specifying in reasonable detail the reasons for such action at least three calendar days in advance of its intention to take such action with respect to a change in recommendation; (ii) ONEOK Partners has negotiated with ONEOK in good faith to make such adjustments in the terms and conditions of the merger agreement; and (iii) the ONEOK Partners board or the ONEOK Partners conflicts committee again concludes in good faith, after consultation with its financial advisors and outside legal counsel, and taking into account any adjustment or modification to the terms and conditions of the merger agreement proposed by ONEOK, that the failure to effect a change in recommendation or to terminate the merger agreement with respect to such intervening event would be inconsistent with its fiduciary duties under applicable law.

An “intervening event” means a material event, fact or circumstance, development or occurrence that is not known or reasonably foreseeable to or by the ONEOK Partners board, the ONEOK Partners conflicts committee or the ONEOK board or ONEOK special committee, as the case may be, as of the date of the merger agreement, which event, fact, circumstance, development or occurrence becomes known to or by (x) the ONEOK Partners board or the ONEOK Partners conflicts committee, as the case may be, prior to the ONEOK Partners unitholder meeting or (y) the ONEOK board or ONEOK special committee, as the case may be, prior to the ONEOK shareholder meeting.

Notwithstanding the restrictions described above, the merger agreement does not prohibit ONEOK Partners from (i) taking and disclosing to its respective unitholders a position required by Rule 14e-2 under the Exchange Act or (ii) complying with Rule 14d-9 under the Exchange Act.

 

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ONEOK Partners Unitholder Approval

ONEOK Partners has agreed to hold a special meeting of the ONEOK Partners unitholders as promptly as practicable for purposes of obtaining the ONEOK Partners unitholder approval. See “The ONEOK Partners Special Meeting.” This obligation is not affected by the withdrawal or modification by the ONEOK Partners board or the ONEOK Partners conflicts committee of its recommendation or any other action by the ONEOK Partners board or the ONEOK Partners conflicts committee, as the case may be, with respect to the merger agreement or the transactions contemplated by the merger agreement.

The merger agreement also requires ONEOK Partners, through the ONEOK Partners board and the ONEOK Partners conflicts committee, to recommend to the limited partners of ONEOK Partners approval of the merger agreement (subject to the ability of the ONEOK Partners board or the ONEOK Partners conflicts committee to change such recommendation as described herein) and use reasonable best efforts to obtain from the limited partners of ONEOK Partners the ONEOK Partners unitholder approval.

ONEOK Recommendation and ONEOK Adverse Recommendation Change

Under the merger agreement, ONEOK, through the ONEOK special committee, has agreed to recommend that ONEOK shareholders vote in favor of the stock issuance proposal (the “ONEOK board recommendation”). Subject to the provisions described below, the merger agreement provides that ONEOK, directly or indirectly, will not:

 

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solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquires or any proposals that constitute the submission of an alternative proposal;

 

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enter into an acquisition agreement with respect to an alternative proposal; or

 

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(a) withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to ONEOK Partners, the ONEOK special committee recommendation, (b) fail to include the ONEOK special committee recommendation in this joint proxy statement/prospectus, (c) authorize, approve, declare advisable, adopt or recommend or propose to publicly authorize, approve, declare advisable, adopt or recommend, any alternative proposal or (d) authorize ONEOK or any of its subsidiaries to enter into an alternative acquisition agreement or enter into an agreement, arrangement or understanding with respect to any alternative proposal.

Each of the foregoing actions is referred to as an “ONEOK adverse recommendation change.”

Notwithstanding these restrictions, after the date of the merger agreement and before ONEOK obtains its shareholders approval, if (i) ONEOK has received a written alternative proposal that the ONEOK board believes is bona fide, (ii) the ONEOK board, after consultation with its financial advisors and outside legal counsel, determines in good faith that (x) such alternative proposal constitutes or could reasonably be expected to lead to or result in a superior proposal and (y) failure to take such action would be inconsistent with its duties under applicable law and (iii) such alternative proposal did not result from a breach of the merger agreement, then ONEOK may (A) furnish information, including confidential information, with respect to ONEOK and its subsidiaries to the person making such alternative proposal and (B) participate in discussions or negotiations regarding such alternative proposal; provided, however, that (x) ONEOK and its respective subsidiaries will not, and will use their reasonable best efforts to cause their respective representatives not to, disclose any non-public information to such person unless ONEOK has, or first enters into, a confidentiality agreement with such person and (y) ONEOK will provide to ONEOK Partners and ONEOK Partners GP non-public information with respect to ONEOK Partners and its subsidiaries that was not previously provided or made available to ONEOK Partners or ONEOK Partners GP prior to or substantially concurrently with providing or making available such non-public information to such other person.

Notwithstanding these restrictions, before ONEOK obtains its shareholder approval, the ONEOK board or ONEOK special committee, as the case may be, may make a change in recommendation or terminate the merger

 

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agreement if (a) in response to a superior proposal and following consultation with outside legal counsel, the ONEOK board of ONEOK special committee, as the case may be, determines that the failure to make a change in recommendation or terminate the merger agreement would be inconsistent with its fiduciary duties under applicable law or (b) in response to an intervening event, the ONEOK board or ONEOK special committee, as the case may be, after consultation with its financial advisors and outside legal counsel, determines in good faith that the failure to take such action would be inconsistent with its duties under applicable law.

The merger agreement further provides that the ONEOK board or ONEOK special committee, as the case may be, may not make a change in recommendation or terminate the merger agreement unless: (i) ONEOK has provided prior written notice to ONEOK Partners specifying in reasonable detail the reasons for such action at least three calendar days in advance of its intention to take such action with respect to a change in recommendation; (ii) ONEOK has negotiated with ONEOK Partners and ONEOK Partners GP in good faith to make such adjustments in the terms and conditions of the merger agreement; and (iii) the ONEOK board or ONEOK special committee, as the case may be, again concludes in good faith, after consultation with its financial advisors and outside legal counsel, and taking into account any adjustment or modification to the terms and conditions of the merger agreement proposed by ONEOK Partners, that the alternative proposal continues to constitute a superior proposal or the failure to effect a change in recommendation would be inconsistent with its fiduciary duties under applicable law.

An “intervening event” means a material event, fact or circumstance, development or occurrence that is not known or reasonably foreseeable to or by the ONEOK Partners board, the ONEOK Partners conflicts committee or the ONEOK board or ONEOK special committee, as the case may be, as of the date of the merger agreement, which event, fact, circumstance, development or occurrence becomes known to or by (x) the ONEOK Partners board or the ONEOK Partners conflicts committee, as the case may be, prior to the ONEOK Partners unitholder meeting or (y) the ONEOK board or ONEOK special committee, as the case may be, prior to the ONEOK shareholder meeting.

A “superior proposal” means a bona fide written offer, received after the date of the merger agreement, to acquire, directly or indirectly, more than fifty percent (50%) of the outstanding equity securities of ONEOK or assets of ONEOK and its subsidiaries on a consolidated basis, made by a third party, which is on terms and conditions which the ONEOK board or ONEOK special committee, as the case may be, determines in its good faith to be more favorable to the ONEOK shareholders from a financial point of view