Williams and Williams Partners L.P. announced an agreement under which Williams will acquire all of the outstanding public common units of Williams Partners in an all stock-for-unit transaction. It’s in response to a recent government ruling affecting income tax policy.
The transaction is valued at $10.5 billion including a 1.494 ratio of Williams common shares per unit of Williams Partners. The company said it represents a premium to the public unitholders of 6.4 percent based on closing prices on May 16, 2018.
The move comes after Williams and Williams Partners announced in March there was the potential for a corporate restructuring. The two indicated the restructuring would be in response to the Federal Energy Regulatory Commission’s March 15 issuance of a revised policy statement that reversed FERC’s 2005 income tax policy that permitted master limited partnership interstate oil and gas pipelines to maintain an income tax allowance in cost-of-service rates.
Since March, the companies have determined their latest transaction is in the best interests of Williams’ shareholders and Williams Partners’ public unitholders. The companies indicated that the transaction extends the period for which Williams is not expected to be a cash taxpayer through 2024.
Company leaders say it also increases excess cash coverage that can be re-invested in capital projects as well as boosting liquidity.
Alan Armstrong, Williams’ president and chief executive officer, made the following statements regarding the transaction:
“This strategic transaction will provide immediate benefits to Williams and Williams Partners investors. Today’s announcement will maintain the income tax allowance that is included in our regulated pipeline’s cost-of-service rates.”
He said it also simplifies the corporate structure and streamlines governance.
Under the terms of the merger agreement, Williams will acquire all of the 256.0 million public outstanding units of Williams Partners at a fixed exchange ratio of 1.494 Williams shares for each public unit of Williams Partners (or a fixed exchange ratio of 1.513 if the closing does not occur before the record date for Williams’ dividend to be paid in the third quarter of 2018). In aggregate, assuming a 1.494 exchange ratio, Williams will issue approximately 382.5 million shares in connection with the proposed transaction, representing approximately 31.6 percent of the total shares outstanding of the combined entity. The transaction will be taxable to Williams Partners unitholders, and Williams will receive the tax benefits from the basis step-up; resulting in extending the period to which Williams is not expected to be a cash taxpayer through 2024.