Williams Buys One of the Best MLPs on the Market

On Sunday, Williams Companies  (NYSE: WMB  ) announced its intention to purchase the remaining 50% general partner stake in Access Midstream Partners (NYSE: ACMP  ) and 55.1 million limited partner units from Global Infrastructure Partners for $5.995 billion in cash. The deal will affect numerous parties, including unit holders of Williams Partners (NYSE: WPZ  ) , so let's take a closer look.

The deal 
Heading into the weekend, Williams owned half of the general partner stake in Access Midstream, along with 23% of the limited partner units. After the deal it will own the entire general partner stake and 50% of Access' limited partner units. As of Friday's close, the 55.1 million limited partner units it picked up from Global were valued at $3.6 billion. Once the deal closes, Williams will be the sole general partner for two separate master limited partnerships: Access, and Williams Partners.

What does Williams get in Access?
Access Midstream Partners is the largest gathering and processing MLP in the country by throughput volume, moving 3,828 million cubic feet of natural gas per day. Its key assets combine for 6,400 miles of natural gas gathering pipelines in key American shale plays, including the Eagle Ford, Permian, Marcellus, and Utica.

It's a great footprint, but without question Access' most attractive characteristic is that 100% of its contracts are fee-based. That means it has no direct exposure to commodity prices and it generates stable, predictable revenue, which is ideal for master limited partnerships.

Access has been quite the growth story, generating a mere $76 million in EBITDA in the first quarter of 2011, and $250 million in EBITDA in the first quarter of this year. It expects EBITDA to continue to grow, projecting a range of $1.4 billion to $1.6 billion by 2016, while also growing its distribution around 15% annually. Beyond that, Access also posts 3.95 times debt to adjusted EBITDA for the last twelve months, and a distribution coverage ratio of 1.4 times payouts. It's a healthy MLP, in other words. Williams is buying a first-class gatherer processor.

What is the end goal?
Williams plans to merge Access Midstream Partners with Williams Partners, retaining the Williams Partners name. It has proposed an exchange of 0.85 units of Access for one unit of Williams Partners, though these details will be sorted out once the Access acquisition becomes final.

The new structure would form a massive MLP capable of generating approximately $5 billion in EBITDA on an annual basis. For comparison, the two biggest MLPs on the market, Enterprise Products Partners and Kinder Morgan Energy Partners, generated adjusted EBITDA of $4.7 billion and $5.1 billion respectively last year.

The new super MLP would pay 2015 distributions greater than 25% of Access' guidance, and post 10% to 12% annualized growth out to 2017.

Williams will also drop down its remaining assets, transitioning to a pure play general partner that generates revenue solely from its economic stake in the new super MLP.

Bottom line
The clear winners here are Williams shareholders, especially unit holders of Williams Partners. The MLP has had a rough go of it given the depressed price of natural gas liquids over the past few years, and the troubles at its Geismar plant. It is now throwing in with the best gatherer and processor on the market, and things are certainly looking up.

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