M&A activity in the natural gas sector heats up as this latest deal becomes the first step in a massive takeover plan by Williams Companies Inc. (NYSE:WMB)…
Enterprise value (EV) is often a more accurate representation of a company’s value compared to simple market capitalization.
That’s because EV also takes into consideration the value of a firm’s debt, along with minority interest and preferred shares, and subtracting total cash and cash equivalents.
For the handful of publicly traded companies that have attained an enterprise value (EV) of at least $100 billion, it’s seldom that you see a business reach that level simply on selling one’s own products and services.
To achieve such a feat, it often takes a fair degree of wheeling and dealing to acquire and merge with other businesses and competitors, which would hopefully boost the bottom line and increase the value of the company.
Of course, when it comes to mergers and acquisitions, not all deals prove fruitful.
However, those firms with a penchant for consistently snatching up lucrative deals tend to find themselves amassing their fortune exponentially in the years that follow.
Google (NASDAQ:GOOGL) and Berkshire Hathaway (NYSE:BRKA) are prime examples of business titans that have acquired their way into building huge EVs for themselves.
When Google went public in 2004, it had a market cap of just over $23 billion. 10 years and dozens of buy-outs later, it’s now up more than $380 billion — with an enterprise value of nearly $330 billion.
Much of that growth can be attributed to landmark acquisitions through the years, including YouTube, DoubleClick, Motorola Mobility, and Nest Labs.
Berkshire meanwhile currently has over 80 businesses under its belt, which helped the firm achieve record profit in 2013 and an enterprise value of over $327 billion.
Now joining the ranks of these and other esteemed companies who run $100 billion-plus operations is 106-year old Tulsa-based Williams Companies, Inc. (NYSE:WMB).
Founded in 1908, Williams is a natural gas gatherer and transporter. It has operations and assets spanning from the deepwater Gulf of Mexico to the Canadian oil sands.
Just last week, Williams announced a deal to increase its ownership in Access Midstream Partners (NYSE:ACMP).
In the agreement, WMB, the company that controls Williams Partners LP (NYSE:WPZ), will pay approximately $6 billion to acquire the remaining 50% stake of Access’ general partnership that’s owned by controlling entity Global Infrastructure Partners II.
An additional 55.1 million shares of ACMP will also be acquired in the deal, thus giving Williams 100% control of the general partnership and 50% of the limited partnership, according to a statement by Williams.
Upon the purchase, WMB then proposed that WPZ merge with Access to form a master limited partnership (MLP) and retain the name Williams Partners.
Once completed, the combined enterprise value from the two transactions will put Williams in the $100 billion range.
This will effectively make Williams one of, if not, the biggest, midstream players in nearly every major supply basin and shale play that it has operations in.
“We expect the acquisition to deliver immediate and future dividend growth for Williams’ shareholders and to further enhance our presence in attractive growth basins,” Alan Armstrong, Williams’ CEO, said in the statement. “In addition, we expect the acquisition of Access Midstream Partners will fortify Williams’ stable, fee-based business model and support our industry-leading dividend growth strategy.”
The company said it will increase its third-quarter dividend by 32% to 56 cents a share once the transaction closes.
By 2015, the MLP anticipates it would pay investors $1.20 for every dollar it earns.
The stake in Access’s general partner means Williams is entitled to an increasing share of cash flow as it grows and can collect dividends on the partnership’s common units.
Not a bad arrangement…and alongside the strong natural gas market that we’re currently seeing, it’s only going to add more value for Williams.