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

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.

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.


Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 17, 2014, at 12:29 PM, TellyL wrote:

    If this is all positive, why are ACMP shares dropping today, and what is the prognosis? What is the upside for ACMP?

  • Report this Comment On June 19, 2014, at 6:16 PM, dpid wrote:

    I second TellyL. Is this a non-event for ACMP shareholders?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2997298, ~/Articles/ArticleHandler.aspx, 12/19/2014 3:00:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement