Williams Seeks Breakup of Energy, Communications
In a move analysts predict will help both companies realize
their full value, Williams has begun the first steps to separate
its energy division from its communications businesses. The board
of directors of the Tulsa, OK-based company voted July 23 to begin
the process, which is expected to take about 18 months.
Though the company had not announced a specific plan last week,
the change from the current ownership structure will hinge on
several factors, including assuring Williams' shareholders that
they will receive favorable tax treatment. Williams sold about 15%
of Williams Communications last October in public and private
equity offerings. It retains the remaining 85% interest.
In a statement, CEO Keith Bailey said the company thought the
steps were "the best way to ensure that both our energy and
communications businesses have the efficient and effective access
to the capital necessary to pursue the substantial growth
opportunities that each enjoys." For the same reason, Reliant
Energy also announced last week that it was separating its
regulated and unregulated businesses (see related story this
Based on the news, JP Morgan upgraded its stock rating for
Williams to "buy" from "long-term buy." Also, Goldman Sachs
"strongly reiterated" the stock, with a $60 target price. Goldman
said if the stock traded in line with its peers, its shares would
trade for about $80 per share.
On Friday, Williams reported that its segment profit from energy
businesses more than doubled during the second quarter as compared
with the same period of 1999. It reported unaudited second-quarter
net income of $351.8 million, or 78 cents per share. Most of the
rise in income was "driven primarily by higher income from electric
power activities and continued improvement in key energy markets,"
said the company.
The consolidated results also included a previously reported 25
cents per share gain on a Williams Communication investment
resulting from its exchange of 11.3% common stock investment in
Concentric Network Corp. for common stock of NEXTLINK
Communications Inc. That merger was announced June 19.
During the second quarter of 1999, Williams reported net income
of $18.1 million, or 4 cents per share on a diluted basis. Those
results included an after-tax loss of nearly $35 million, or 8
cents per share, related to the sale of the company's conferencing
"We believe 2000 will be a landmark year for our energy
businesses," said CEO Keith E. Bailey. "The second-quarter energy
results, lead by a major series of successes in our energy
marketing and trading area, were even better than those reported
for the first quarter, which was a record for us." He said that
"barring a significant deterioration of commodity margins,"
Williams will have a strong performance through the rest of 2000.
Carolyn Davis, Houston
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