Williams Surges as Dividend Hike Sweetens Access DealJim Polson
Williams Cos., the fourth-largest U.S. pipeline operator, rose the most in more than five years after promising a 32 percent dividend increase after it buys control of Access Midstream Partners LP for $6 billion, creating among the biggest natural-gas transporters.
Williams Cos., based in Tulsa, Oklahoma, rose 19 percent to $56.02 at the close in New York, the biggest increase since October 2008. Williams intends to merge Access Midstream with affiliate Williams Partners LP. Williams Partners rose 5.6 percent to $55.87 while Access rose 1.9 percent to $66.57.
More cash flow from Access, which transports natural gas from wells to processing plants, including some operated by Williams, will enable a 32 percent increase in the company’s third-quarter dividend to 56 cents, Williams said. Williams purchased for $2.4 billion in December 2012 a half stake in the entity that controls Access and 25 percent of the units traded publicly.
“This is all certainly being driven by the dividend,” Carl Kirst, a Houston-based analyst for BMO Capital Markets, said today in a telephone interview. He rates Williams as a buy and owns no shares. “We thought Williams had the wherewithal to deliver on 20 percent dividend growth and now, all of a sudden, the market is giving them credit for it.”
Because all Access Midstream revenue comes from fixed fees, about 80 percent of cash flow at Williams will be guaranteed after the takeover, Kirst said. Access holders will get a higher payout in exchange for slower growth at the combined company, he said.
Williams exercised its right of first offer for divestiture of the remaining stakes held by by Global Infrastructure Partners II, Chief Executive Officer Alan Armstrong said today on a conference call with analysts.
“We’d hoped ultimately this was where we’d get to,” Armstrong said. The chance to obtain full control “came even quicker than we thought,” he said.
Access, with a market capitalization of about $13.5 billion, provides oil and gas gathering services to Chesapeake Energy Corp., Anadarko Petroleum Corp. and other major exploration companies, according to its 2013 annual report. Its stock is up about 16 percent this year. Control of the partnership will help Williams add flows particularly in the Marcellus and Utica shale gas fields in the U.S Northeast, Armstrong said today.
Williams will pay cash for the Access stakes in a deal expected to close next quarter.
After that close, Williams proposes to exchange 0.85 Access units for each Williams Partners unit, according to a statement issued yesterday. Payout from the combined partnership will rise as much as 12 percent annually through 2017, Williams Chief Financial Officer Don Chappel said on today’s call.
Access Midstream said separately it hasn’t approved a merger and will consider a proposal. Mike Stice, Access Midstream’s CEO, said that “since Williams invested in ACMP in 2012, it’s been clear to me that our companies share many common values.”
The merged company, which will use the name Williams Partners, would have 2015 adjusted earnings before interest, taxes, depreciation and amortization of about $5 billion, Williams said.
In 2012, Williams bought about 25 percent of Oklahoma City-based Access and half of its general partner -- called Access Midstream Partners GP LLC.
The merged company would pay investors $1.20 for every dollar it earns in 2015, Chappel said on the call. Williams Partners paid out more than it made in the past two years and reduced spending on pipeline maintenance, Jefferies Group LLC said in March.
Williams ranks behind Kinder Morgan Inc., Kinder Morgan Energy Partners LP and TransCanada Corp. in pipeline mileage, according to data compiled by Bloomberg.