Williams Companies’ acquisition of the remaining interests in Access Midstream Partners for US$6bn marked the culmination of a multi-year strategy to change its corporate structure and increase stakeholder value. The deal was earnings-accretive despite an equity-heavy financing package consisting of US$3.5bn raised through a follow-on stock sale, the largest-ever by a US natural resources company and the largest by any US company in 2014.
“Investors have demonstrated that they will put a higher value on general partners who are solely focused on paying out excess cashflows directly to investors rather than on asset development,” said Williams Companies’ CFO Don Chappel. “The valuation prospect was compelling – the acquisition allowed us to accelerate the transformation to a pure-play general partner by a good year to 18 months.”
Williams and its advisers, led by Barclays, gave investors the opportunity to evaluate the merits of the ACMP acquisition at the announcement on June 15, with two management teams conducting nearly 40 one-on-one calls at 15–20 minute intervals.
Key was news that Williams would boost its dividend by 32% to 56 cents per quarter at closing, with further 15% increases planned annually from 2015 to 2017.
Equity investors were hooked, driving the shares up 18.7% to US$59.68.
Barclays, Citigroup and UBS, which had signed on to bridge the US$6bn purchase, seized on the momentum by launching the equity and debt financing at US$3bn and US$1.9bn, respectively. The effort culminated in the placement of 53m shares at US$57, reflecting a 0.5% discount to last sale, and the subsequent exercise of the greenshoe took total sizing to US$3.5bn.
Williams is now essentially a holding company that collects cashflow on ownership interests in master limited partnerships. In October, it reached agreement to merge separately traded Williams Partners with ACMP, with a distribution target for the combined MLP of US$3.65 per share and projected Ebitda for 2015 of US$5bn.
Getting to this point, however, was anything but straightforward. Post-financial crisis the company began the consolidation through a series of initiatives: in 2010, it merged two publicly traded MLPs into one vehicle, which combined with the sale of most of its midstream assets is known internally as the “Big Bang”; it then spun off its E&P assets in WPX Energy the following year; purchased the initial stake in ACMP the next; and the remainder of ACMP in 2014.
Williams expects to generate more than 80% of its earnings from fee-based contracts derived from underlying ownership interests. Combined with minimal capex requirements, the reward of stability is higher valuation – Williams trades at 13.4 times EV/Ebitda, versus the 7.8 median of the past 10 years.
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