Since Monday’s announcement of the $38 billion merger between Energy Transfer Equity L.P. (NYSE: ETE) and Williams Companies Inc. (NYSE: WMB), the shares of both companies have posted new 52-week lows on each of the past two days. Shares of Williams closed at $34.93 on Tuesday, down about 15% since the announcement, and more than $8.50 below the share value of Energy Transfer Equity’s $43.50 per share cash-and-stock offer.

Analysts at Argus do not agree, although they do say they are “disappointed that the Williams board misjudged the opportunity to sell the company at a higher price earlier this year.” No kidding. The earlier Energy Transfer Equity offer was an all-stock deal that valued Williams at $64 a share and was worth a total of around $53 billion.

Under the terms of the agreement, Williams shareholders can elect to receive payment in all common shares in Energy Transfer Corp., a yet-to-be-formed affiliate of Energy Transfer Equity, which will trade on the New York Stock Exchange under the ticker symbol ETC, or in a combination of Energy Transfer Corp. stock and cash, according to the following limitations:

Cash elections will be prorated to the extent they exceed $6.05 billion in the aggregate and stock elections will be prorated to the extent the full $6.05 billion cash pool is not utilized. Williams stockholders electing to receive stock consideration will receive a fixed exchange ratio of 1.8716 ETC common shares for each share of WMB common stock, before giving effect to proration. If all Williams’ stockholders elect to receive all cash or all stock, then each share of Williams common stock would receive $8.00 in cash and 1.5274 ETC common shares.

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Williams shareholders will also receive a one-time special dividend of $0.10 per share to be paid immediately before the transaction closes. For tax purposes, Energy Transfer Corp. will be treated as a corporation, not a master limited partnership. Argus also notes:

ETE has also guaranteed that ETC shareholders will receive the same cash dividends as ETE shareholders, and that any market discount for ETC, relative to ETE, will be remedied through additional share issuance or cash payments.

In its report released Wednesday, Argus reiterates its Buy rating on Williams stock but cuts its fiscal year 2015 adjusted earnings per share estimate from $0.87 to $0.83 due to weak commodity prices. Even though the Energy Transfer Equity acquisition is expected to close in the first half of next year, Argus is maintaining its stand-alone earnings per share estimate for Williams in 2016 at $1.33.

Argus is also maintaining its 2015 dividend estimate for Williams at $2.47 per share, representing a dividend yield of 6.9%. The researchers note that Williams has paid a dividend every quarter since 1974. Argus did not provide a dividend estimate for next year due to its belief that the transaction with Energy Transfer Equity will close in the first calendar quarter of 2016.

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On a valuation basis, Argus uses a “multistage dividend discount model” to value Williams, and on that basis the firm places a fair value on the shares of $63 per share. Here’s the Argus argument:

The current yield spread to the 10-year Treasury is 485 basis points, compared to a 100-basis-point average over the last five years, implying that the shares are inexpensive relative to Treasuries. The yield spread to the 10-year is the highest it has been since before the 2008-2009 financial crisis. The yield spread to the Alerian index (AMZ), a group of MLP peers, is negative 180 basis points, compared to an average spread near zero, implying that the shares are expensive relative to the group. Overall, given WMB’s visible high-growth trajectory, we believe the shares are undervalued on an absolute basis and relative to peers and Treasuries.

Shares of Williams appeared to have stopped the bleeding Wednesday, trading up around 1.5% at $35.45 in the noon hour. The stock’s 52-week range is $34.64 to $61.38, and the low was posted Tuesday.

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