What: Shares of both Williams Partners (NYSE:WPZ) and Williams Companies (NYSE:WMB) declined close to 20% in the month of September. While the entire MLP market suffered, much of Williams' woes were related to the fact that it agreed to a $37 billion buyout from Energy Transfer.
So What: I'm guessing that if Williams' management had access to a time-traveling DeLorean, they would go back and tell their former selves to take the original offer from Energy Transfer. Back in May, Energy Transfer was willing to shell out $48 billion for Williams Companies, but Williams' management at the time thought that it was seriously undervaluing the company.
So much for that.
It also didn't help that the entire MLP space suffered in the month, although you could argue that the sell-off from Williams and Energy Transfer was in large part to blame.
Now What: Now that the deal is final, the question is whether buying either Williams Partners or Williams Companies, which will change its name to Energy Transfer Corporation, is a sound investment today. Of course, there are some pros and cons. The advantages of the merged company is that the increased size and scale make its network of pipelines and processing facilities more attractive to producers because of the greater amount of market options. Also, as one of the five largest publicly traded entities, it should help to give the company better access to capital in order to finance new projects.
One thing that could be a concern, though, is that the increased size also means increased complexity. With Williams Partners under the Energy Transfer corporate umbrella, that makes for five subsidiary MLPs, each of which has large funding needs in the coming years to finance large projects. Access to capital may be better, but Williams Partners alone is looking at a project backlog of $35 billion. If Williams and Energy Transfer need to tap equity and debt frequently to fund these obligations, it could make investors nervous about dilution and debt.