Here’s How Williams’ Acquisition of Access Midstream Partners Will Benefit Investors

Williams’ decision acquisition of Access Midstream Partners should drive stronger, more visible cash flow and dividend growth.

Jun 17, 2014 at 12:00PM

On Sunday, Williams (NYSE:WMB), an integrated gas company focused on exploration and production, midstream gathering and processing, and interstate natural gas transportation, announced that it will acquire full control of Access Midstream Partners (NYSE:ACMP), a midstream natural-gas services provider with infrastructure assets in some of the fastest-growing oil and gas plays in the country.

Here's why the move bodes extremely well for shareholders of both Williams and Williams Partners (NYSE:WPZ), a master limited partnership majority-owned by Williams.

G

Photo credit: Wikimedia Commons.

Key benefits of Access acquisition
Under the terms of the deal, Williams will pay nearly $6 billion in cash to acquire a 50% general partner, or GP, interest in Access, along with 55.1 million limited partner, or LP, units in the company. That means it will own 100% of the GP and 50% of the LP interests in the company, following a 2012 transaction in which it acquired a 50% GP interest and 23% LP interest in Access.

By acquiring full control of Access Midstream, Williams will further cement its leading position in the Marcellus shale, where it owns one of the largest and most important U.S. gas pipelines -- the Transco pipeline -- and gain greater exposure to a number of fast-growing plays in which Access operates, including the Barnett, Eagle Ford, Haynesville, Niobrara, and Utica shales.

It also means that Williams is entitled to an increasing share of Access' cash flow through GP/IDR (incentive distribution rights) and LP cash distributions. As a result, Williams' cash flow per share is expected to grow sharply over the next few years, allowing the company to deliver much stronger dividend growth to its shareholders.

Once the acquisition closes, expected in the third quarter of this year, Williams plans to boost its third-quarter dividend by 32% to $0.56 per share. The company expects to deliver 15% annual dividend growth through 2017, with planned annual dividends of approximately $1.96 per share this year, $2.46 in 2015, $2.82 in 2016, and $3.25 in 2017.

The acquisition will also significantly boost Williams' fee-based revenue to more than 80% of its gross margin, providing greater stability and predictability to its business model. This is because capacity on Access' infrastructure assets -- mainly natural-gas pipelines -- is secured by 100% long-term, fixed-fee contracts. These contracts feature minimum volume requirements, which means that Access' customers have to pay a fixed fee irrespective of whether they meet a minimum threshold of natural-gas volume.

Benefits of proposed merger with Access
Williams has also proposed to merge Williams Partners with Access Midstream. If consummated, the proposed merger would create one of the largest and fastest-growing MLPs, with projected 2015 adjusted EBITDA of approximately $5 billion, according to Alan Armstrong, Williams' chief executive officer.

Assuming the deal is finalized in 2014, the merged MLP is estimated to grow its 2015 distribution by at least 25% above Access' current guidance of $2.79 per unit, and to deliver distribution growth of 10%-12% through 2017 with a strong distribution coverage estimated to be roughly 1.2 times in 2015 and at or above 1.1 times through 2017.

Investor takeaway
Williams' acquisition of Access Midestream Partners is a strong positive for shareholders of both Williams and Williams Partners, as it will allow for much stronger dividend growth and an even more stable business model. The proposed merger of Williams Partners with Access should also be a strong positive for Williams since the merged MLP would deliver industry-leading distribution growth with strong coverage and investment-grade credit, providing its general partner -- Williams -- with a fast-growing and highly visible revenue stream.

Will this stock be your next multibagger?
While Williams' acquisition of ACMP should create significant shareholder value, there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers