Williams (WMB) to Acquire Subsidiary in $13.8B Stock Deal - Analyst Blog
North American energy firm Williams Companies Inc. WMB announced that it would acquire Williams Partners L.P. WPZ in a $13.8 billion all stock-for-unit deal.
The merger is on the lines of last year’s Kinder Morgan KMI deal, wherein the company purchased of all the outstanding equity of its three subsidiaries – Kinder Morgan Energy Partners, L.P., Kinder Morgan Management, LLC and El Paso Pipeline Partners, L.P
Since the KMI deal has been a success, investors are optimistic about this merger as well. While shares of Williams Companies gained over 6%, Williams Partners units soared nearly 23% following the announcement.
Transaction Details
Williams will acquire all the 247 million outstanding units of Williams Partners. Per the transaction terms, Williams Partners unitholders will receive 1.115 shares of Williams for each unit they hold. As such, Williams will be issuing a total of 275.4 million shares, which represents about 27% of the total outstanding shares of the combined entity.
While the transaction will be taxable to Williams Partners’ unitholders, Williams Companies will receive tax benefits from the asset step up to be realized over a 15-year period.
The deal is expected to close in the third quarter, following necessary regulatory filings and shareholder approvals. Post completion of the merger, Williams Partners will become a wholly-owned subsidiary of Williams Companies.
Raising Dividends
Post merger, the new entity is expected to become one of the largest and fastest growing dividend paying company. The company is anticipated to pay third-quarter dividend of 64 cents per share ($2.56 annualized), up 6.7% from the prior third-quarter dividend guidance of 60 cents and up 8.4% from the second-quarter payout.
For 2016, the combined entity is expected to pay dividend of $2.85 per share, up 6.3% form the previous guidance for the year.
Transaction Benefits
The merger will result in an expanded portfolio for the combined entity. Also, the transaction will result in reduced cost of capital and higher tax benefits. The company believes that these strengths should facilitate the 10–15% dividend growth through 2020.
The merger will also result in streamlining of operations and the large scale, fully-contracted infrastructure projects of the combined entity should drive growth. The company expects EBITDA to grow from $5.4 billion in 2016 to $6.8 billion in 2018.
The combined company will have strong credit rating, consistent with the current rating and outlook of Williams Partners.
Zacks Rank
Williams Companies and Williams Partners both currently carry a Zacks Rank #3 (Hold). A better-ranked player from the oil and gas production/pipeline industry, TransCanada Corp. TRP, sports a Zacks Rank #1 (Strong Buy).
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WILLIAMS COS (WMB): Free Stock Analysis Report
WILLIAMS PTR LP (WPZ): Free Stock Analysis Report
KINDER MORGAN (KMI): Free Stock Analysis Report
TRANSCDA CORP (TRP): Free Stock Analysis Report
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