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Williams 'Aligned' with Activists' Push for Value, Says CEO

Williams management is "very well aligned" with two hedge funds holding nearly 10% of the stock and continues to have discussions on plans to create value, CEO Alan Armstrong said Thursday.

Corvex Management LP and Soroban Capital Partners LP in a filing on Feb. 14 disclosed that they now own 9.96% of Williams and have hired investment firm Moelis & Co. for advice. The hedge funds first disclosed in December that they held a 5.3% stake and had begun talks with the natural gas pipeline operator. Most of their holdings in Williams are in shares, putting their economic value today at around $2.5 billion. Their position mostly consists of derivatives that offer an economic interest in an equivalent amount of stock.

The activists have expressed an interest in seats on the board of directors. They also want Williams to pursue more mergers, such taking full ownership of Access Midstream Partners LP, the former midstream business of Chesapeake Energy Corp.

"We do have a long track record here at Williams and, in fact, in recent years, have been a leader in taking advantage of transformational and structural opportunities that create value for our shareholders, and we continue to welcome input towards our goal of enhancing shareholder value for this great company," Armstrong said during an earnings conference call (see Daily GPI, Feb. 20).

Williams' natural gas operations are spread from here to yonder, onshore and into the deepwater Gulf of Mexico. It secured a half-stake in Access in late 2012, bolstering its access into major basins across the United States (see Daily GPI, Dec. 13, 2012). Private equity fund Global Infrastructure Partners LP owns half of the business.

The hedge funds' perspective "is that we're well undervalued relative to marking to our peers, and that we've got the best growth story in the business, and we ought to be getting value better than our peers and not just at par with our peers," Armstrong told analysts. "I think they see a huge value gap there. And I have to say, I share their perspective. And I'm very well aligned and will continue to work with them or anybody else that has good ideas on how we can achieve that value."

Williams management "always had our eyes open to any arbitrage that's available in the market and any additional value we can add to our shareholders to either transformational or structural changes...I don't think anybody can accuse us of not having been aggressive, and in fact, we've certainly been a leader in many of the structural changes over the last several years...

"I think the drivers will be what the market is valuing and how our businesses are being best valued in the market, and we'll continue to look for those opportunities as time goes by...Unless there became a roadblock between a really good idea and what we are willing to do, that would be catalyst that might limit 2014. I just don't see that. I think we're very well aligned with both Corvex and Soroban in terms of looking for the great value."

The hedge funds to this point only have requested seats on the board of directors, said Armstrong. Williams filed a U.S. Securities and Exchange Commission Form 8-K announcing that it had extended the window for nominating board members because compliance issues were "first and foremost."

"That really was to eliminate any disclosure kind of risk and really allow the parties to have a more thorough discussion post that information being out there. So I think you should see that as very accommodating on the company's part and very interested in continuing those discussions."

Williams' ability to maintain its investment grade ratings provide "a lot of flexibility and ability to be opportunistic, particularly during very challenging times when the high-yield market is locked up," said CFO Don Chappel.

"But having said that, we're certainly open-minded to other paths that create more value but it would have to be something compelling that would cause us to deviate from the path that we're on. So again, we continue to be open-minded, but we think it would take a compelling value-creation situation in order for us to deviate from our current path."

Besides Williams, Corvex has of late made targets of real estate investment trust CommonWealth and rental car company Hertz Global Holdings. Corvex is run by Carl Icahn protege Keith Meister. Soroban was founded by former executives with hedge fund TGP-Axon, whose energy investments include Plains GP Holdings and SemGroup.

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