Energy Business

What You Should Like in the Williams Merger Transformation

Gas pipeline
Source: Thinkstock
Monday has been a busy day for The Williams Companies Inc. (NYSE: WMB). The firm announced this morning that it will pay $6 billion for the portion of Access Midstream Partners LP that it does not already own. Williams owns 50% of the midstream firm plus 23% of its general partner. It is acquiring the stake held by Global Infrastructure Partners II.

Williams also plans to merge its midstream spinoff, Williams Partners LP (NYSE: WPZ) with Access once the acquisition is completed. The surviving company would be named Williams Partners LP and Williams would become a pure-play general partner holding company.

To complete its transformation to a pure-play GP holding company, Williams said it is speeding up the drop-down of $600 million in assets of its NGL & PetChem to take place late this year or early next year.

Williams will raise its dividend from $0.425 per share to $0.56 beginning in the third quarter and is guiding future increases at approximately 15% per year from the $0.56 per share base. Annual dividend payments are expected to total $1.96 in 2014, $2.46 in 2015, $2.82 in 2016, and $3.25 in 2017, subject to approval by the company’s board of directors.

Moody’s Investors Service maintained its investment grade ratings on both Williams and Williams Partners, saying that the ratings agency only sees the two companies’ leverage declining through the next 18 months. Moody’s also cited the strategic fit between Williams Partners and Access. Analysts’ reactions to the announcement has been positive, with Jefferies raising its rating from Hold to Buy with a price target of $65. Credit Suisse has also raised its price target to $65.

Williams’ CEO said:

The proposed merger of Williams Partners and Access Midstream Partners, if consummated, would create an industry-leading, large-scale MLP with substantial positions across the midstream business – spanning natural gas gathering and processing, natural gas transmission pipelines, and NGL and petchem services. Our positions in these businesses provide clearly identified growth for the foreseeable future.

Williams Partners is lowering its financial guidance for 2014 due to delays in the expansion and start-up of its petrochemical operations in Geismar. The company now expects distributable cash flow in the range of $2 to $2.2 billion. Williams Partners did not change its guidance for 2015 or 2016. The plant’s expansion cost is expected to increase by $65 million to $715 million.

Shares of Williams are up nearly 19% Monday afternoon at $56.06, well above the 52-week high of $48.00 when markets opened this morning. The new 52-week range is $31.25 to $59.68.

Common units of Access are up 1.5% at $66.00, after posting a new 52-week high of $66.25 earlier this afternoon. The 52-week low is $44.39.

Units of Williams Partners are up nearly 7% at $56.56. The new 52-week high is $57.29 set earlier today and the 52-week low is $45.37.

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