Williams Cos. Inc. executives said they opted to roll up the company's master limited partnership in part because they think a fight between the pipeline industry and federal regulators over a recent tax policy change has the potential to drag on for years.
"The industry in general, I think, has several points they can argue about with the FERC. We think that probably will take a long period of time to settle — years, probably — for that to be settled with the FERC," Williams CFO John Chandler said at a May 17 analyst day. "Obviously, we don't have time to do that."
Williams announced early May 17 that it will acquire the 256 million Williams Partners LP shares it does not already own for about $10.5 billion, a move that was widely expected following a March decision by the Federal Energy Regulatory Commission to strip oil and gas pipeline MLPs' ability to recover an income tax allowance in their cost-of-service rates.
Chandler said he expects the new structure to bring Williams' debt to investment-grade status, an upgrade that rating agencies S&P Global Ratings, Moody's and Fitch all said they are considering following the simplification announcement.
The deal will also bring in more investors who are not laser-focused on MLPs, Chandler said. "We think it'll attract more generalists to our name, people who have a hard time wanting to invest because of the complexity and the governance structures with MLPs," he said. "They can look straight to the growth story we have to tell about our assets."
Williams had planned to acquire its MLP in 2015 for $13.8 billion but terminated the agreement in favor of a combination with Energy Transfer Equity LP. That deal ultimately collapsed in June 2016 after Energy Transfer Equity's law firm failed to generate a tax-free opinion for the merger.
More recently, MLPs have seen their advantage over C corporations shrink. Even before FERC's policy change, partnerships' attractiveness compared to C-corps slipped after the 2017 federal tax policy overhaul, which delivered a steep cut to C-corp tax rates and only a modest deduction for MLPs.
But when FERC's March 15 announcement sent stock prices tumbling, many companies said they were thinking more seriously about restructuring. The Canadian pipeline giant Enbridge Inc. on May 17 also announced that it plans to absorb its sponsored entities, including its MLP Enbridge Energy Partners LP, and the LNG exporter Cheniere Energy Inc. offered to buy the remaining outstanding shares of the holding company that controls much of its MLP.
When asked whether the commission foresaw its decision triggering deals like Williams', FERC Chairman Kevin McIntyre said that restructuring was not a "driving force" behind the agency's decision-making. "Neither I nor, I'm sure, any of my colleagues would presume to suggest a particular business or corporate structure model for any participant, MLP or otherwise," he said at a May 17 FERC meeting. "It is up to the individual market participant to make that decision."
Williams' merger is scheduled to close in the fall.
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