In the last part of the series, we discussed how Williams Companies (WMB) will benefit from acquiring Access Midstream Partners (ACMP). In this part of the series, we’ll analyze the proposed ACMP-Williams Partners (WPZ) merger.
New merger terms
On October 26, WMB amended its ACMP-WPZ merger proposal. According to the new terms, WPZ will merge into a subsidiary of ACMP at a ratio of 0.86672 common ACMP units for every WPZ common unit.
The new transaction terms include 0.85 ACMP common units. It also includes additional consideration of ~$1.02 per WPZ common units in the form of additional ACMP common units. As a result of the merger, WPZ will be owned by ACMP.
Earlier, WMB proposed merging ACMP at a ratio of 0.85 ACMP units per WPZ unit. WMB expects the transaction to be complete by 2015.
Why the merger can be financially advantageous
The proposed merger is expected to push WMB’s 2015 adjusted earnings before interest, tax, depreciation, and amortization (or EBITDA) to $5 billion. It’s also expected to increase distribution per unit to $3.65—50% higher than ACMP’s 2Q14 distributions. This would also be 30% higher than ACMP’s original 2015 guidance.
This translates into 10%–12% distribution growth rate and distribution coverage ratio of 1.1x. Check out MLP Basics.
Is it validated by operational synergies?
The reason ACMP’s contribution is expected to result in much higher performance is because of ACMP’s capital growth projects. ACMP’s merger will bring certain advantages to WMB.
- Increased presence in the fastest growing natural gas shales and basins in the U.S.
- WPZ’s presence in the downstream sector in the Gulf Coast and western Canada would be good for ACMP’s pipelines
- ACMP’s fee-based contract portfolio will bring stability to WMB’s cash flows
- Possible synergy between the two companies through a common operational platform in natural gas
- Increased efficiency in capital allocation
ACMP expects to see higher escalating volume commitment and long-term fee-based structure. This would pull the fee-based portion of Williams’ revenue structure. ACMP planned a $4.3 billion capex from 2013 through 2016.
In the next part of the series, we’ll discuss WMB’s growth plans. We’ll also discuss why it’s upbeat about its mid-term outlook.