Williams and Williams Partners L.P. yesterday announced an agreement under which Williams will acquire all of the outstanding public common units of Williams Partners in an all stock-for-unit transaction at a 1.494 ratio of Williams common shares per unit of Williams Partners. The transaction is valued at US$10.5 billion; representing a premium to the public unitholders of 6.4% based on closing prices on 16 May 2018, or a premium of 13.6% to the unaffected closing prices on 15 March 2018, the day prior to Williams’ announcement described below.
In a Williams and Williams Partners joint news release on 16 March 2018, Williams and Williams Partners indicated the potential for a corporate restructuring in response to the Federal Energy Regulatory Commission’s (FERC) 15 March 2018, issuance of a revised policy statement that reversed the FERC’s 2005 income tax policy that permitted master limited partnership (MLP) interstate oil and natural gas pipelines to maintain an income tax allowance in cost-of-service rates. Since that time, Williams and Williams Partners considered a number of alternatives relating to the FERC ruling and determined that the transaction described herein is in the best interests of Williams’ shareholders and Williams Partners’ public unitholders.
Compelling benefits of the transaction for WMB shareholders:
- Immediately accretive to cash available for dividends for Williams.
- Retention of significant Distributable Cash Flow coverage (of approximately 1.7x in 2019) allowing excess cash to be re-invested in attractive capital projects.
- Extends the period for which Williams is not expected to be a cash taxpayer through 2024 and provides modest G&A savings.
- Achieves investment-grade credit ratings consistent with Williams Partners’ current ratings.
- Simplifies organisational structure, expanding investment appeal to a broader range of corporate investors.
Solid value proposition of the transaction for public WPZ unitholders:
- Meaningful upfront premium.
- Receipt of five dividends/distributions during the calendar year 2018, equating to approximately a 15% increase to the previously-guided 2018 distributions (assuming closing occurs before the Williams’ regular 3Q dividend record date; otherwise, the exchange ratio will be increased to 1.513 and Williams Partners public unitholders will receive a total of four dividends/distributions during the calendar year).
- Retains income tax allowance for regulated cost-of-service revenue.
- Increases excess cash coverage that can be re-invested in attractive capital projects.
- Retains investment-grade credit ratings consistent with current ratings.
- Increases trading liquidity, float and access to capital markets.
Alan Armstrong, Williams’ President and Chief Executive Officer, made the following statements regarding the transaction:
“This strategic transaction will provide immediate benefits to Williams and Williams Partners investors. The announcement will maintain the income tax allowance that is included in our regulated pipeline’s cost-of-service rates. This transaction also simplifies our corporate structure, streamlines governance and maintains investment-grade credit ratings. The transaction will allow Williams to directly invest the excess coverage in our expanding portfolio of large-scale, fully-contracted infrastructure projects that will drive significant EBITDA growth without the need to issue equity for the broad base of projects currently included in our guidance.
“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. As a fast-growing, investment grade C-Corp with the best natural gas infrastructure assets in the sector, we are confident this combined entity will provide a compelling investment opportunity to a broader range of investors.”
Under the terms of the merger agreement, Williams will acquire all of the 256.0 million public outstanding units of Williams Partners at a fixed exchange ratio of 1.494 Williams shares for each public unit of Williams Partners (or a fixed exchange ratio of 1.513 if the closing does not occur before the record date for Williams’ dividend to be paid in the 3Q18). In aggregate, assuming a 1.494 exchange ratio, Williams will issue approximately 382.5 million shares in connection with the proposed transaction, representing approximately 31.6% of the total shares outstanding of the combined entity. The transaction will be taxable to Williams Partners unitholders, and Williams will receive the tax benefits from the basis step-up; resulting in extending the period to which Williams is not expected to be a cash taxpayer through 2024.
Williams has reviewed the proposed transaction with the rating agencies and expects the combined entity will have investment grade credit ratings consistent with Williams Partners’ current ratings.
The merger is expected to close in the fall of 2018 subject to standard closing conditions, including the requisite approval of Williams shareholders. Following consummation of the merger, Williams Partners will become a wholly owned subsidiary of Williams.
The board of the general partner delegated to a conflicts committee consisting solely of independent directors the authority to review, evaluate and negotiate the transaction on behalf of Williams Partners and the public unitholders. The Williams Partners Conflicts Committee approved the transaction and recommended approval of the transaction to the board of directors of the general partner of Williams Partners. The transaction was approved by the boards of directors of both the general partner of Williams Partners and Williams.
Morgan Stanley & Co. LLC and Gibson, Dunn & Crutcher LLP and Davis Polk & Wardwell LLP acted as financial and legal advisors, respectively, to Williams. Evercore and Baker Botts L.L.P. acted as financial and legal advisors, respectively, to the Conflicts Committee of Williams Partners.
Read the article online at: https://www.worldpipelines.com/business-news/18052018/williams-announces-agreement-to-acquire-all-public-equity-of-williams-partners/
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