Williams Companies Inc (NYSE: WMB), the pipeline operator, announced on June 15 that it has consented to take over Access Midstream Partners LLP (NYSE: ACMP). The deal amount will be roughly $5.99 billion and will constitute the first step when it comes to merging the acquired company’s operations with the acquirer. Williams want to enlarge its role in the rise of US natural gas production.
Williams is considered as the fourth biggest pipeline company in the United States as far as the market capitalization is considered. This deal will give it control of the biggest gathering and also processing of master limited partnership (MLP) when calculated in the light of volumes.
If there is a successful merger between Williams Partners LP, the MLP of Williams and Access, it will form one of biggest MLPs in light of enterprise value – nearly $100 billion.
About the deal
MLPs have found popularity among investors who are lured by their federal tax exempt status. The negative offshoot of such exemption from tax is the accompanying weak corporate governance standards. As per the agreement on July 15, Williams will take over 50 percent rights it does not own at present in the Access controlling entity from Global Infrastructure Partners, a fund manager specializing in infrastructure. This entity is termed as general partner. The general partner will acquire about 55.1 million Access shares from Global Infrastructure Partners. Each share is called a unit. Its share in Access will subsequently increase from about 23 percent to 50 percent.
Williams already has 50 percent ownership in the general partner of Access and had about 23 percent of Access units in the last month of 2012. The company has reiterated that it will pay for this deal with cash-on-hand and equity.
In the second transaction, where the mutual agreement is still pending, Williams is of the opinion that there should be a merger between Access and Williams Partners LP. In the light of this deal, Access would for all purposes acquire the Williams Partners in a unit by unit exchange at 0.85 ratio Access Midstream Partners with one unit of Williams Partners.
The proposal is also inclusive of an option by unit holders of William Partners to take either take a special payment coming to $0.81 per unit or extra Access units to compensate for lower than expected per-unit distribution of cash in 2015.