Williams, the natural gas producer to no longer be publicly traded
Williams (WMB) plans to contribute its gas pipeline business and domestic distribution system and its limited and general partner interests in Williams Pipeline Partners (WMZ) into Williams Partners LP (WPZ). After the transactions, Williams Pipeline Partners will no longer be publicly traded. “The restructuring is intended to drive additional growth and value for Williams’ shareholders and Williams Partners’ unitholders,” Williams said.
“The moves will result in two well-capitalized entities that are better positioned to pursue value-adding growth strategies; both expect to have investment-grade credit ratings.” Shares of Williams Cos. jumped 7.5% to $22.98. Williams Pipeline Partners rose 15% to $26.81. Williams Partners LP rose 16% to $35.66. BMO Capital Markets reiterated its outperform rating on Williams Cos.
“This simplification and acceleration of the master limited partnership strategy should help establish a clear and transparent valuation for the pipe and midstream assets, and as a result highlight the arguable 40% discount of its exploration and production assets,” BMO said in a note to clients. Debt rating company Fitch placed Williams Partners on Rating Watch positive and added that the moves reflect a “strengthening operating and financial profile and investment-grade pro-forma credit measures.” As part of the deal, Williams will purchase $3 billion of its corporate debt from the $3.5 billion in cash it will receive from Williams Partners. That cash, plus the value of 203 million Williams Partners units and $2 billion in assumed debt comprise the bulk of the $12 billion value for the deal.
Williams Partners will boost its regular quarterly distribution by 3.5% per LP unit to 65.8 cents from 63.5 cents starting with the first quarter. Williams Partners will offer a fixed exchange ratio of 0.7584 of its common units for each Williams Pipeline Partners common unit. The exchange values Williams Pipeline Partners at $23.35 a unit, flat with its closing price on Friday. In conjunction with the restructuring transactions, Williams expects to incur estimated nonrecurring charges totaling approximately $425 million net of tax, in the first quarter of 2010.
After the deal, Williams will own approximately 80% of larger Williams Partners, up from 24% of current partnership.
The gas pipeline assets Williams will contribute to Williams Partners include 100% of Transcontinental Gas Pipe Line Company, 65% of Northwest Pipeline, and 24.5% of Gulfstream Pipeline.