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Williams Companies and Access Midstream merger—big impact on MLPs

Part 4
Williams Companies and Access Midstream merger—big impact on MLPs (Part 4 of 5)

Williams Partners to merge with Access Midstream in an MLP

Williams Partners and Access Midstream

Williams Companies Inc. (WMB), in addition to acquiring Access Midstream Partners L.P. (ACMP), also seeks to merge Williams Partners L.P. (WPZ), it operating subsidiary, with ACMP. WPZ is a master limited partnership (or MLP) operating in the midstream energy space in the U.S.

Combined valueEnlarge Graph

The merged MLP is expected to increase its 2015 distribution per unit to at least 25% above ACMP’s current guidance of $2.79 per unit for 2015. For 2014, this represents an increase of more than 40%. The combined company is also expected to grow distributions by 10%–12% through 2017 and have strong distribution coverage. Distribution coverage is expressed as the ratio of distributable cash flows to distributed cash flows. A higher coverage ratio is positive for investment because it implies that the business has ample cash to continue paying distributions to unit holders.

The merger proposal is a unit-for-unit exchange in which 0.85 Access Midstream units would be exchanged for each Williams Partners unit. Williams Partners unitholders also would have the option of taking a one-time special payment of 81 cents a unit, or the equivalent value of additional Access Midstream units, to compensate for expected lower per-unit cash distribution in 2015.

Three components of midstream structure benefit

The MLP will have all the three key building blocks of a midstream business. In the natural gas pipeline business, it would combine ACMP and WMB’s Transco, Northwest, and Gulfstream representing the major interstate pipeline systems in the U.S. In the natural gas gathering and processing business, the combined MLP would have large-scale positions in growing natural gas supply areas in major shale and unconventional producing areas. The advantage of the new MLP over many of the major MLP names in the midstream sector would be its presence in the downstream sector. In addition to natural gas liquid (or NGL) fractionator and storage facilities, WPZ invests in pipelines, an olefins production facility, and a refinery grade propylene splitter and pipelines in the Gulf Coast region and in western Canada would provide differentiated long-term growth to the new entity.

Who commented what on the merger?

Mike Stice, the chief executive officer (or CEO) of ACMP said in the conference call, “Since Williams invested in ACMP in 2012, it’s been clear to me that our companies share many common values on matters such as customer service, operational excellence and the focus on the development of our employees. With respect to the proposed merger of ACMP and WPZ, I am confident that ACMP’s board of directors will engage in a thorough analysis and process to provide a positive outcome for ACMP unitholders.”

Williams CEO Alan Armstrong commented on the proposed merger as, “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 L.P. (WPZ) is a MLP operating in the midstream energy space. Currently, Williams Companies (WMB) owns the general partner interests in WPZ. WMB is also a general partner in Access Midstream Partners L.P. (ACMP). ACMP is part of the Alerian MLP ETF (AMLP) and WMB is part of the Global X MLP & Energy Infrastructure ETF (MLPX).

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