Williams Cos to acquire its MLP for $13bn

The natural gas pipeline company says the all-stock deal will lead to tax savings, lower cost of capital and a streamlined corporate structure.

Oklahoma-based Williams Companies has agreed to acquire its master limited partnership (MLP) Williams Partners, at a 1.115 ratio of Williams common shares for each Williams Partners unit, resulting in a deal worth $13 billion, according to a statement.

The announcement comes three months after the natural gas pipeline company merged Williams Partners with Access Midstream into one MLP – in which it holds a nearly 60 percent stake – in a transaction worth $50 billion, as part of its previously stated goal to transition into a pure-play general partner holding company.

Williams expects the transaction to provide tax benefits as well as other advantages, such as a simplified corporate structure, streamlined governance and strong investment-grade ratings.

“This strategic transaction will provide immediate benefits to Williams and Williams Partners investors,” said Alan Armstrong, Williams’ president and chief executive.

The transaction will be taxable to Williams Partners unitholders, but that may be offset by the 14.5 percent premium they will receive as a result of the share swap.

Once the acquisition is completed, which is expected in the fall of 2015, the combined entity is anticipated to be one of the largest and fastest-growing high-dividend paying C-Corps in the energy sector, according to the statement.

“We anticipate significant market valuation upside and lower cost of capital for new fee-based growth projects along with incremental growth through strategically aligned M&A activities,” Armstrong said. “Our roster of large-scale, fully contracted infrastructure projects will drive extraordinary adjusted EBITDA growth from an expected $5.4 billion in 2016 to $6.8 billion in 2018.”

The company said it had reviewed the proposed transaction with rating agencies and expected that the combined entity would have strong investment grade credit ratings consistent with those of Williams Partners.

Soon after Wednesday’s announcement, Standard & Poor’s affirmed its BB+ corporate credit and senior unsecured debt ratings on Williams, placing them on CreditWatch with “positive implications,” the rating agency said in a note.

It also affirmed Williams Partners’ BBB long-term corporate credit rating and A-2 short-term rating and maintained its stable outlook.

“The ratings affirmation on WPZ [Williams Partners] reflects our view that the benefits to creditors of a combined Williams group are offset by higher consolidated leverage, but still lower than our downgrade trigger of forecast debt to EBITDA of 4.5x,” S&P credit analyst Nora Pickens said.

“Pro forma for the transaction, we continue to view Williams’ business risk as ‘strong’ given that the company’s asset profile will remain largely unchanged,” S&P stated. The agency also cited fee-based cash flow and a dominant midstream energy operating position as the company’s credit strengths.

“The placement of WMB [Williams] on CreditWatch with positive implications reflects our expectation that we will raise its ratings in line with those of existing WPZ’s ratings,” the ratings agency said.

Williams, which is a provider of large-scale infrastructure for North American natural gas and natural gas products, says it is well positioned to benefit from demand increases along major interstate corridors.

Williams Partners has operations across the natural gas value chain from gathering, processing and interstate transportation. It owns and operates more than 33,000 miles of pipelines.