In a move analysts predict will help both companies realizetheir full value, Williams has begun the first steps to separateits energy division from its communications businesses. The boardof directors of the Tulsa, OK-based company voted July 23 to beginthe 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 onseveral factors, including assuring Williams’ shareholders thatthey will receive favorable tax treatment. Williams sold about 15%of Williams Communications last October in public and privateequity offerings. It retains the remaining 85% interest.

In a statement, CEO Keith Bailey said the company thought thesteps were “the best way to ensure that both our energy andcommunications businesses have the efficient and effective accessto the capital necessary to pursue the substantial growthopportunities that each enjoys.” For the same reason, ReliantEnergy also announced last week that it was separating itsregulated and unregulated businesses (see related story thisissue).

Based on the news, JP Morgan upgraded its stock rating forWilliams to “buy” from “long-term buy.” Also, Goldman Sachs”strongly reiterated” the stock, with a $60 target price. Goldmansaid if the stock traded in line with its peers, its shares wouldtrade for about $80 per share.

On Friday, Williams reported that its segment profit from energybusinesses more than doubled during the second quarter as comparedwith the same period of 1999. It reported unaudited second-quarternet income of $351.8 million, or 78 cents per share. Most of therise in income was “driven primarily by higher income from electricpower activities and continued improvement in key energy markets,”said the company.

The consolidated results also included a previously reported 25cents per share gain on a Williams Communication investmentresulting from its exchange of 11.3% common stock investment inConcentric Network Corp. for common stock of NEXTLINKCommunications Inc. That merger was announced June 19.

During the second quarter of 1999, Williams reported net incomeof $18.1 million, or 4 cents per share on a diluted basis. Thoseresults included an after-tax loss of nearly $35 million, or 8cents per share, related to the sale of the company’s conferencingbusiness.

“We believe 2000 will be a landmark year for our energybusinesses,” said CEO Keith E. Bailey. “The second-quarter energyresults, lead by a major series of successes in our energymarketing and trading area, were even better than those reportedfor 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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