Linda Carlisle was quoted regarding the planned acquisition of natural gas pipeline owner and operator Williams Partners LP's (WPZ) by its parent C corporation, The Williams Companies Inc. The planned transaction is similar to the November rollup by Kinder Morgan. The transaction will enable the master limited partnership (MLP) or publicly traded partnership (PTP) to abandon its flow-through partnership structure and operate in corporate form. Companies that engage in these transactions decide that the additional depreciation deductions they would receive on the basis of MLP benefits are worth more than sacrificed flow-through benefits. "You've heard many people talk about the dis-incorporation of America," said Carlisle, adding that Williams is, as she put it, "Kinderizing" itself. "I think we're now seeing the in-corporation of America."
Carlisle said that more than 50 percent of the income from WPZ was going into Williams. "The corporation was therefore paying double tax on that amount and making distributions to its shareholders," she said. She explained that foreigners and tax-exempt organizations chose to invest in the C corporation, instead of the MLP, because they needed a blocker to prevent the income from being considered effectively connected income under section 864 or unrelated business taxable income under section 512.
Carlisle predicted that both Kinder Morgan and The Williams Companies will end up contributing their pipelines back into an MLP structure sometime in the next decade. "It could start all over again," she said.