Is MLP M&A Creating Value?
Tyler Laundon: In 2010 Chesapeake Energy (NYSE:CHK) – the world’s biggest natural gas company at the time – was in dire straits. The company was struggling after natural gas prices plunged by 50%.
So it took an unexpected step and decided to spin off its gas pipeline company in a $513 million IPO. Simultaneously, Chesapeake sold part of its stake in the Master Limited Partnership (MLP) to a $15 billion private equity firm, called Global Infrastructure Partners.
That transaction created Chesapeake Midstream Partners. The idea was that the formation of the MLP would provide tax advantages to both Chesapeake and other shareholders of the new entity.
But it didn’t pan out as planned for CHK. A couple years later it was still suffering. The company had overextended itself, drilling too many new wells. Worst yet, natural gas prices were still depressed.
So Chesapeake started selling off more assets, including a $2.4 billion deal with Williams Cos. (NYSE: WMB) in 2012 that included a 25% “limited partner” stake in Chesapeake’s MLP and a 50% share of the “general partner” interest in the pipeline company.
New beginnings are a great time for a new name. So even though this MLP had been in existence since 2010, they re-named it Access Midstream Partners (NYSE: ACMP) on July 24, 2012.
Today, Access Midstream is in the center of another round of M&A.
The proposal on the table is that WMB will buy out Global Infrastructure Partners’ stake in ACMP for $6 billion. Furthermore, WMB plans to merge ACMP into its subsidiary, Williams Partners (NYSE:WPZ). I won’t get into all the details of the planned merger since there is already a lot of this analysis out there for public viewing.