Morningstar | Williams Forms JV With Canada Pension Plan Investment Board in Appalachian Region
Williams and the Canada Pension Plan Investment Board (CPPIB) have agreed to form a joint venture focusing on the Appalachian region. There are two takeaways from this agreement, in our view. First, now Williams has an incremental $600 million to devote to further debt reduction. The incremental cash will help it achieve its goal of 4.2 times debt to EBITDA and ultimately provide it with more flexibility sourcing and funding new projects. We estimate it needs another $1.4 billion in asset sales to reach its goal. Second, private equity interest in midstream for quality assets in public entities is increasing. This joint venture is following Blackstone's two recent investments in Targa and Tallgrass, and the Canadian Pension Plan Investment Board's recent purchase of a stake in Magellan's BridgeTex pipeline. Broadly, this trend tends to support our stance that the midstream space is modestly undervalued. Given the transaction is too small to move the needle for Williams, we plan to maintain our $28 fair value estimate and narrow moat rating.The joint venture looks to provide Williams with capital and operating efficiencies in the Appalachian region. It will include the Utica East Ohio and the Ohio Valley midstream systems. CPPIB will invest $1.34 billion for a 35% stake in the operation, while Williams will retain the remaining 65% and be the operator. Williams will buy out the remaining 38% stake in the Utica East Ohio system from Momentum Midstream to take full control for the joint venture, resulting in net proceeds to Williams of about $600 million.
Williams Companies is an energy infrastructure company focused on connecting North America's hydrocarbon resource plays to markets for natural gas and natural gas liquids (NGLs) through its gas pipeline and midstream business. The company's segments are: Transmission & Gulf of Mexico, which includes the company's subsidiary, Transcontinental Gas Pipe Line Company, LLC, an interstate natural gas pipeline that extends from the Gulf of Mexico to the eastern seaboard; Northeast G&P, which includes the company's natural gas gathering, compression, processing, and NGL fractionation businesses; and West, which includes the company's interstate natural gas pipeline.
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