Pipeline operator Williams Companies Inc said on Sunday it agreed to acquire control of Access Midstream Partners LP for $5.99 billion as the first step in merging it with its operations, aiming to enlarge its role in the U.S. natural gas boom.
The deal gives Williams, the fourth-largest U.S. pipeline company based on market capitalization, control over the industry's largest gathering and processing master limited partnership (MLP) as measured by throughput volume.
A subsequent merger of Williams' MLP, Williams Partners LP, with Access, will, if successful, create one of the largest MLPs by enterprise value - close to $100 billion.
Exempt from federal income tax, MLPs have been hugely popular among investors seeking higher yields, even though their structures often have corporate governance standards weaker than those of corporations.
Under the agreement unveiled on Sunday, Williams will acquire the 50 percent stake it does not already own in the controlling entity of Access, referred to as the general partner, from infrastructure fund manager Global Infrastructure Partners (GIP).
It will also acquire 55.1 million shares in Access, referred to as units, from GIP, boosting its share of Access units from 23 percent to 50 percent. Williams had previously acquired a 50 percent stake in the Access general partner and 23 percent of the Access units in December 2012.
Williams said it would pay for the latest deal with equity, debt and cash on hand.
In a second transaction, which has yet to be mutually agreed and will have to be approved by conflicts committees set up by the two sides, Williams said it had proposed the merger of Williams Partners LP and Access.
Under the deal, Access would effectively acquire Williams Partners in a unit-for-unit exchange at a ratio of 0.85 Access Midstream Partners units per one Williams Partners unit.
The proposal also includes an option for Williams Partners unitholders to take either a one-time special payment of $0.81 per unit, or an equivalent value of additional units of Access, to compensate for a lower expected per-unit cash distribution in 2015.
Williams also said it plans to increase its third-quarter dividend by 32 percent, to 56 cents per share. It also provided new dividend-growth guidance of about 15 percent annually between 2014 and 207.
Williams Partners owns interests in three major interstate pipelines which, combined, deliver 14 percent of the natural gas consumed in the United States. Access owns and operates more than 6,300 miles of natural gas pipelines across nine states.
UBS AG, Barclays Plc and Citigroup Inc acted as financial advisers, while Gibson, Dunn & Crutcher LLP offered legal advice to Williams.
(Reporting by Greg Roumeliotis in New York; Editing by Dan Grebler)