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Williams Seeks Breakup of Energy, Communications

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 issue).

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 business.

"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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