Williams Co. plans $10-billion stock buyback to ease tax woes

While the recent tax overhaul came as a boon for most industries, it left some businesses in a dilemma, and the oil and gas transportation sector is one of them. Currently, most of the pipeline operators are facing enormous payouts for being obliged to refund the amounts they collected from customers in advance — as per the previous tax rates — for making future tax payments to the government.

In a move aimed at mitigating tax-related cost burdens in future, energy infrastructure company Williams (WMB) has decided to streamline the corporate structure by repurchasing the remaining stake in its master limited partnership Williams Partners (WPZ) for $10.5 billion.

The value of the transaction represents a 6.4% premium to shareholders over the stock’s last closing price. After ending the previous trading session higher and gaining more than 5% in the premarket Thursday, Williams’ shares continued to rise in the early trading hours.

By adding the remaining 26% stake in Williams Partners back into its fold, the Oklahoma-based pipeline operator expects to boost the cash available to pay dividends, and also to sustain the investment-grade credit ratings currently enjoyed by Williams Partners.

Williams will repurchase the remaining stake in its master limited partnership Williams Partners

The tax benefit that comes consequently to the share repurchase will also extend the period of tax exemption — when Williams is not obliged to pay cash tax — through 2024. Pursuant to the transaction, which is expected to close in the fall of 2018, Williams Partners will merge with Williams Companies and operate as a wholly owned subsidiary.

“This strategic transaction will provide immediate benefits to Williams and Williams Partners investors. Today’s announcement will maintain the income tax allowance that is included in our regulated pipeline’s cost-of-service rates,” said Williams CEO Alan Armstrong.

In the income tax amendment introduced in December 2017, the federal government had scrapped the tax concessions enjoyed by master limited partnerships. The tax rules stipulate that operators of oil and natural gas pipelines should include in customers’ bills the tax they are expected to pay in future.

Elsewhere, in a similar transaction, Canada-based energy transportation firm Enbridge (ENB) earlier today announced the acquisition of all of the equity securities, which the company currently does not own, from its sponsored vehicles.