Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Units of Williams Partners LP (NYSE:WPZ) soared more than 21% this morning. Fueling the rise was news that its general partner and largest unitholder, Williams Companies Inc (NYSE:WMB), was acquiring the units it didn't own in a $13.8 billion stock-for-unit deal. The market really liked the news as shares of Williams Companies also soared more than 5% on the news.
So what: The deal accomplishes several goals for Williams Companies. First, it simplifies its corporate structure, which will lead to cost synergies and a lower cost of capital. That simplification, along with the elimination of incentive distribution rights, will lead to meaningful accretion to cash available for distributions, which will fuel 10%-15% annual dividend growth through 2020. Further, even with that projected robust dividend growth the company sees its dividend coverage building from over 1.1 times next year to nearly 1.2 times in 2018.
The transaction also positions Williams as a top-tier natural gas-focused energy infrastructure company with strong investment-grade credit ratings that provide it with inexpensive funding to drive future growth.
Now what: Williams is following in the footsteps of several other large energy infrastructure companies to consolidate its holdings under a single corporate banner. This simplified structure eliminates many of the redundant public company costs and better positions the company toward a unified purpose of creating shareholder value. In this case the value will come from a very compelling dividend that's expected to not only grow by double digits, but grow stronger over time.