It wasn’t all that long ago that the Williams Companies (WMB) spun off the company’s pipeline and natural gas businesses into two MLPs: Williams Partners LP (WPZ) and Williams Pipeline Partners LP (WMZ). Now, Williams will transfer its gas pipeline business, U.S. midstream business, and its limited and general partnership interests in Williams Pipeline Partners into Williams Partners. The deal is valued at about $12 billion.
Once the transfers have been made, Williams Partners plans to make an exchange offer for all outstanding publicly held units of Williams Pipeline Partners. Based on today’s share price for Williams Pipeline Partners, that could add another $1 billion or so to the eventual value of the transaction.
This deal is not just re-arranging deck chairs on the Titanic. Williams Partners will now play in the big league, along with Kinder Morgan (KMP), Plains All-American (PAA) and Enterprise Products (EPD).
As is usually the case with these kinds of deals involving MLPs, Williams and Williams Partners are trying to create growth opportunities by making investors an offer they can’t refuse. Williams Partners expects to earn an investment-grade rating on its common units, which will make it easier for the company to grow its midstream pipeline and gas storage business without borrowing.
Williams expects to get out from under the obligation of funding midstream operations and turning its attention to is exploration and production business.
Once the deal is completed, Williams will own 84% of Williams Partners’ combined general- and limited-partner interests, up from the 24% Williams currently owns. Williams expects dilution in those interests “over time as Williams Partners issues new LP units to the public to finance growth.”
MLPs live and die on growth, which comes from acquisitions, new-build pipelines, or increased transportation and storage volumes. Regulated rates can also be increased, but this is usually more problematic. Williams Partners is likely to aggressively pursue both pipeline and storage assets and businesses.
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