Williams Partners L.P. (NYSE:WPZ) has entered into a contribution agreement to acquire from The Williams Companies, Inc. (NYSE:WMB) 100% of the membership interests in Williams Olefins L.L.C. (“Williams Olefins”) for approximately $2.4 billion.
The primary assets of Williams Olefins include a 5/6th undivided interest in the olefins production facility located in Geismar, Louisiana (which is operated by Williams Olefins for the facility’s joint owners, Williams Olefins and SABIC), a refinery-grade propylene splitter and, through its wholly-owned subsidiary, Williams Olefins Feedstock Pipelines, LLC, certain feedstock and product pipelines. The Geismar facility’s light feed cracker uses ethane as its feedstock to produce, primarily, ethylene. While the facility’s ethylene production design capacity is currently 1.35 billion pounds of ethylene per year, an expansion project is underway to increase the ethylene capacity by 600 million additional pounds per year.
The consideration will consist of cash proceeds of $25 million and the issuance of 42,778,812 common units of WPZ (currently valued at approximately $2.3 billion) and 873,037 general partner units. Additionally, the general partner of WPZ (the “General Partner”), has agreed to forgo $16 million from the distribution it would otherwise receive in respect of its incentive distribution rights for each quarter through the later of the quarter ended December 31, 2013 or the quarter in which the Geismar facility expansion is operational.
As a result of a recent IRS private letter ruling, processing natural gas liquids into olefins and marketing, transporting and storing olefins are newly recognized categories of operations which produce “qualifying income,” within the meaning of Section 7704(d) of the Internal Revenue Code, for master limited partnerships (“MLPs”). As a result of this private letter ruling, chemical companies are beginning to assess the desirability of forming their own MLPs.
Baker Botts represented the Conflicts Committee of the Board of Directors of the General Partner that negotiated the transaction on behalf of WPZ and its public unitholders.
The Williams Partners L.P. news release is available here.