Williams Swallows Up MLP In $13.8 Billion Merger

After one successful merger, Williams Cos. Inc. (WMB) is back for seconds, bringing Williams Partners LP (WPZ) into the fold to form a midstream powerhouse in North America, the companies said May 13.

Combined, the company is anticipated to be one of the largest and fastest-growing high-dividend paying C-Corps in the energy sector with an industry-leading dividend growth rate. Since its merger with subsidiary Access Midstream Partners LP, Williams already moves 30% of the nation’s natural gas through its pipelines.

The $13.8 billion Williams for Williams Partners deal is structured as a stock-for-unit transaction. The merger will expand Williams’ dominion in the Marcellus, Utica, Eagle Ford, Haynesville, Barnett, Niobrara and other plays.

“This transaction simplifies our corporate structure, streamlines governance and positions Williams for strong investment-grade credit ratings,” said Alan Armstrong, Williams’ president and CEO, in the release.

By 2016, the combined entity is expected to generate adjusted EBITDA of about $5.4 billion. In April, prior to the deal, Williams’ guidance forecasted $5.3 billion in EBITDA in 2016. However, EBITDA greatly increases a few years in to the merger.

Under terms of the deal, Williams will acquire all of the 247 million public outstanding units of Williams Partners at a fixed exchange ratio of 1.115 Williams shares for each public unit of Williams Partners. Following similar large-scale mergers, Williams Partners unitholders will receive a 14.5% premium to the 10-trading day average closing price of Williams Partners.

In total, Williams will issue 275.4 million shares in connection with the proposed transaction, representing about 27% of the total shares outstanding of the combined entity.

Similar transactions have helped forge corporate deals since the downturn began in 2014.

In November, for instance, Baker Hughes Inc. (BHI) agreed to a $34.6 billion buyout by Halliburton Co. (HAL). About 75% of the deal will be paid with Halliburton stock at a 41% premium to Baker Hughes’ closing price as of Oct. 10. Since then, several large-scale transactions have used stock or MLP traded units to get deals done.

"In our view, the [Williams] transaction promotes a simplified corporate structure and could lead to perhaps a more efficient and focused organization," said Mark Reichman, director in research, Simmons & Co. International, in a report.

Reichman said more importantly he expects the transaction to be accretive to Williams cash available for dividends.

Armstrong said the lower cost of capital and improved tax benefits expected from this transaction boosts the company’s confidence in extending the duration of its expected 10-15% dividend growth rate through 2020.

Williams' dividend for third-quarter 2015 is expected to increase to $0.64, or $2.45 annualized, in connection with the merger closing. The expected quarterly dividend increases are subject to quarterly approval of the company board of directors.

Williams Partners is a MLP with operations across the natural gas value chain in major U.S. basins including the Marcellus, Utica, Piceance, Four Corners, Wyoming, Eagle Ford, Haynesville, Barnett, Midcontinent and Niobrara. It owns natural gas pipelines, including Transco, Northwest and Gulfstream and also offers oil and natural gas gathering services in the Deepwater Gulf of Mexico.

In February, Williams Partners merged into a subsidiary of Access Midstream and Access changed its name to Williams Partners. Williams owns the general partner of and controlling interest in the merged entity. The companies, headquartered in Tulsa, Okla., own and operate more than 33,000 mile of pipeline systems.

While EBITDA is initially flat on the deal, Armstrong said the roster of large-scale, fully contracted infrastructure projects of the combined company will grow EBITDA to $6.8 billion in 2018, or by $1.4 billion from earnings expected in 2016.

Williams attributed the Access merger with increasing EBITDA by 19% in the first quarter of 2015. Williams’ 2015 projected EBIDTA is $4.5 billion.

“This strategic transaction will provide immediate benefits to Williams and Williams Partners investors,” he said. “We continue to see an expanding portfolio of projects to connect the best supplies of natural gas and natural gas products to the best markets.”

He said he anticipates 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.

The transaction has been approved by Williams' board of directors and Williams Partners' board and conflicts committee.

The merger requires approval of Williams’ shareholders. The deal is expected to close in the fall of 2015.

Barclays was financial adviser and Gibson Dunn provided legal advice to Williams. Evercore was financial adviser and Baker Botts LLP was legal adviser to Williams Partners' conflicts committee.

The transaction will be taxable to Williams Partners unitholders. Williams will receive the tax benefits from the asset step-up, to be realized over a 15-year period. Following closing, Williams Partners will become a wholly owned subsidiary of Williams.

Contact the author, Emily Moser, at emoser@hartenergy.com.