Natural gas producer and pipeline firm Williams Companies (WMB) announced a $12 billion restructuring program whereby it will combine its pipeline and processing units to create one of the largest natural gas partnerships in the nation.
According to the deal, Williams will sell pipeline assets in the Northeast, Gulf Coast and Rocky Mountain region to affiliate Williams Partners, L.P. (WPZ), which is primarily engaged in finding, producing, gathering, possessing and transporting natural gas. Williams will also contribute its limited and general partner interests in Williams Pipeline Partners L.P. (WMZ), another affiliate that owns and operates natural gas transportation and storage assets, into Williams Partners. However, Williams will keep its exploration and production business at the parent company level.
In exchange, Williams will receive cash proceeds of about $3.5 billion and 203 million Williams Partners LP units. This, together with $2 billion in assumed debt, makes up the major portion of the $12 billion deal. Williams will also increase its ownership in Williams Partners from 24% to 80%, while maintaining its 2% general partner interest. Following the transaction, which is expected to close later in the first quarter of 2010, Williams Pipeline Partners will no longer be publicly traded and will be merged with Williams Partners through an exchange offer.
We believe that the consolidation will allow Williams to simplify its structure, pay down debt, drive growth, and unlock value for the company’s shareholders. Post restructuring, Williams will be able to concentrate on its natural gas exploration and production operations.
On the other hand, the new, larger Williams Partners, with operations across the Gulf Coast, Rocky Mountains and into the northeast, will have a much strengthened operating and financial profile. The restructuring provides Williams Partners a substantial increase in the size and proportion of fee-based cash flows thereby, allowing the partnership to finance large projects and pursue investment and growth opportunities. Additionally, Williams Partners expects to hike its quarterly distribution to unitholders by 3.5% initially.
Following the revamp plan announcement, shares of Williams rallied $1.73, or 8.1%, to close at $23.10. Earlier in the day, the shares hit a 52-week high of $23.76. Williams Partners units climbed $5.60, or 18.2%, to $36.39, and hit a 52-week high of $36.40.
Read the full analyst report on “WMB”
Read the full analyst report on “WPZ”
Read the full analyst report on “WMZ”
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