RBC Downgrades Williams Partners On Valuation

In a report published Thursday, RBC Capital Markets analysts downgraded the rating on Williams Partners LP WPZ from Outperform to Sector Perform, while raising the price target from $59 to $61. Williams Companies, Inc. WMB has announced its intention to acquire 247 million of William Partners' outstanding public units for close to $14 billion. According to the analysts, this price puts the combined entity "on par with other mega-cap midstreamers." The analysts, however, also expressed their concern regarding the timing of the transaction, since they had expected Williams Companies to first ramp its cash flow and coverage for better translation of cost of capital over time. According to the RBC Capital Markets report, "WPZ unitholders take nice upfront value now in our view and, with WMB shares, have the ability to participate in growth." Williams Companies intends to fund the transaction via a 100 percent stock deal, under which shareholders in Williams Partners will get a fixed ratio of Williams Companies shares. This could imply a taxable transaction for the shareholders. The deal is pending approval by Williams Partners' Conflicts Committee and the boards of both companies. It is expected to close in fall 2015, following the approval of Williams Companies' shareholders and regulatory approvals. Regarding the timing of the deal, the analysts explained that "Williams noted the widening spread between WPZ and WMB as a factor, and management expects the accelerated time frame for this type of deal will make it more competitive on funding organic growth and in potential M&A."