May 13, 2015 / 12:01 PM / 5 years ago

UPDATE 2-Pipeline giant Williams Cos scraps MLP unit in $13.8 bln deal

* Williams Cos offers 1.115 shares for a Williams Partners share

* Combined co expects to pay Q3 dividend of $0.64/shr

* William Cos’ shares rise 8.6 pct, William Partners rise 25.3 pct (Adds background, updates shares)

By Sneha Banerjee

May 13 (Reuters) - Pipeline giant Williams Cos is scrapping its master limited partnership unit by buying Williams Partners LP for about $13.8 billion, the latest in a series of deals in the pipeline industry aimed at simplifying corporate structures.

Master Limited Partnerships (MLPs) are also being bought out to eliminate incentivized distribution rights, which over time can divert large chunks of cash returns to general partners and starve the company of capital.

Distribution payouts are becoming a burden for energy companies at a time when they are struggling to cope with a steep fall in global crude prices.

MLP experts say most mature entities eventually need to be unwound.

Crestwood Equity Partners said last week it would buy its MLP, Crestwood Midstream Partners, to cut out incentive distribution rights.

Earlier this year, Energy Transfer Partners said it would buy affiliate Regency Energy Partners LP for about $11 billion. Industry leader Kinder Morgan Inc brought all its units into a traditional C-Corporation last year.

Williams Cos, however, is not completely abandoning the MLP structure. The company still has control of Access Midstream Partners LP, which it agreed to buy last year.

Williams Cos is offering 1.115 of its own shares for each Williams Partners’ share. The offer works out to $55.86 per share, an 18 percent premium to Williams Partners’ Tuesday close.

William Cos’ shares rose as much as 8.6 percent, while William Partners rose as much as 25.3 percent to $59.41.

William Partners’ shares have vastly underperformed the stock of its parent over the past year. Up to Tuesday’s close, William Cos’ shares had risen nearly 14 percent, while William Partners had fallen nearly 15 percent in the last 12 months.

The combined company expects third-quarter dividend of 64 cents per share. Williams Cos had previously expected to pay dividend of 60 cents per share, while Williams Partners was expecting to pay out 85 cents.

The companies said the deal would reduce cost of capital, freeing up funds for acquisitions. Lower capital cost would also drive a 10-15 percent dividend growth rate through 2020.

Barclays and Gibson Dunn were financial and legal advisers, to Williams. Evercore was financial adviser to Williams Partners, while Baker Botts was the legal adviser. (Editing by Saumyadeb Chakrabarty)

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