Seems that would be a long term cap gain since the holding period would be for the partnership, not the unit holder. I have enough losses to cover almost all of the gains but not sure I'd buy more before the deal is done. That's why I was wondering if one could buy the day after the transaction and avoid the gain. Seems the unit value would spike immediately. A 13% yield with 140% coverage sound good but buying now, you would be giving up the first year's dist to pay the tax. More is it is short term as you say.
Get past the transaction and tax liability, $2.40 dist and 1.4 coverage, could argue that units should yield 6% with some growth with oil coming back. That would give you a $40 unit value. Would bet that the units are depressed until the deal is done and it move $2 the next day and goes to $30. Would bet most are waiting so probably dampens unit price now, so buying now is better bet, jumps more than $2 on transaction.
Question for the tax experts here. Assume $700mm of gains, not sure the bond gain, at 70mm units out, that would be a long term cap gain of $10 per unit??? For those that have held for a while, most probably offset with suspended losses, right? So buying after the close date of the transaction, would avoid that tax gain. At $10 per unit, assume 23.5% cap gains rate. Hit is $2.35 per unit. Seems the units will reflect that avoidance under the assumption that you have to hold on the transaction date. Have a call in to co but anyone have an idea of how this works.
Meant to say infrastructure cos did correlate with the oil price. Still argue they shouldn't have.
If you can focus on values vs stock price, which most can't, and it's not easy, most are traders and price is all that matters short term. Buffet is the master of focusing on long term values and waiting for the negative part of the cycle and taking the long view. WMB will get more attention because the price is going up vs the extreme value it was a couple of months ago. That is why commodity related cos are hard for most, you have to have a multi cycle view. In this cycle, I assumed that infrastructure cos wouldn't have the same correlation as e and p cos, and that turned out to be true, but you could view it as an opp because there cash flows were much less affected than the e and p s. It's always easier to view things in the rear view mirror. WMB is the best bet in the infrastructure sector now imo, deal or no deal. And that assumes they don't surprise with something else, a la CHK.
Are you going to be a happy camper with no distribution for two years because that's what Warren is planning. Not saying it won't be a good move after the two years passes. But how is the market going to react to that. I wouldn't mind it so much but at the same time Warren is getting 40% of the current dist in cash and the rest in deferred value to buy ETE units at $6.56 at the end of the two year period. Doesn't feel right to me. But the merged co could be a powerhouse with higher oil and gas prices.
Good point, WPZ is yielding less than WMB, 11% and 13%. That doesn't make sense except for the deal. Assume WPZ's yield is correct relative to peers, probably close, then WMB should be 9% maybe, that's $28. Another view that suggests WMB is undervalued. OKE and OKS are at 7% and 9%. OKE has better coverage. Again, deal craters and WMB moves on up assuming no more CHK surprises to $25 to $30 range, and assuming oil moves up gradually.
Here's a guess, ETE standalone $14, WMB $27. Seems WMB has more upside today without a deal. Deal is forced, ETE sinks to $10 and WMB value $23. ETE has move more recently than WMB, deal off bet. Seems WMB would be the best buy today, deal or no deal. Could make a case that even with a dist elimination, ETE in two years with WMB assets could be a great franchise, does assume oil gets back to $60+ range.
Problem is we don't know much about WMB standalone. What would they do if the merger folds, not sure they would merge WPZ now.
Warren has done a good job of trashing the deal to get it stopped, the values are not as bad as have been made out to be. ETP/SXL just announced an extension of pipe on GC. The market still needs infrastructure, maybe a slower pace but still growth. And it doesn' hurt that Brent Dec price is $47ish. That could easily be $60 ish soon. A drop back to the $30s is still a possibility but betting it doesn't.
Pj, I agree with your assessment, today, just feels like WMB is a great buy opp in the teens if you have a couple of year opp. If the deal goes through, would probably be greater value two years out. Don't think it does and still good value. I may trade for more today. ETE is a good buy also.
I would suggest that OKE is a good comparator to WMB. OKE is yielding 7% now, at that rate WMB should be $37 stock price. ETE should be $14 standalone and WMB should be much higher. Market doesn't like deal with the $6 billion but the two companies alone are undervalued, which tells you that even with a dist cut to pay down debt, the value will still be there. And if oil gets back to $60 to $80, the merged co could be a powerhouse. If you believe that oil is $50 to $60, still good values but not great. The comm price and timing are still the biggest variables. Still think making it all equity at 2.5x or maybe somewhat less, 2x would probably do it now, both stocks would go up. Again would be the leader in the sector.
The merger value is at 30% premium, it had been running at 20%, suggests to me that the deal is not going through, or that's what the arbs think. ETE has been appreciating faster. There is still a chance that the deal goes through, WMB's board seems bent on getting the deal done. but could be negotiating. Still in the camp of not wanting it done but that could change. If oil hits $50 soon, both will keep appreciating, and that could change Warren's position. This is a wierd deal to say the least, wasn't written very well because Warren really wanted WMB and now seems he doesn't. Timing is everything.
Market is betting that the deal is off. If WMB prevails in the lawsuit, seems ETE will dip again. But who knows, the whole sector is rerating.
You need to do more homework, that 70 cents is for PAA's distribution, not PAGP, which pays 23 cent div. PAA is an MLP and PAGP is a partnership that chooses to be taxed as a c corp.
With their coverage and debt level, should be 10% at a minimum, $24 value at least. I 'm sure lots of people will be cashing out, interesting to see how it trades.
1.4x coverage, at $2.40, dist cash $3.36. Figure 10x to 12x, low $30s to $40 value. Even at mid teens, way undervalued. Or 10x ebitda, low $30s. Yield 8% minimum $30. 6% yield $40.