Williams, which restructured its business to concentrate on its core natural gas businesses — exploration, midstream and gas pipelines — agreed Monday to cast off substantially all of its power assets to Bear Energy LP, a unit of The Bear Stearns Cos. Inc., in a deal valued at $512 million. The transaction includes 7,700 MW of gas-fired tolling capacity, 1,800 MW of full requirements power supply contracts and a trading book.
Bear Energy, headquartered in Houston, also acquires various information systems in the deal, and it plans to hire the Williams Power Co. employees. Bear Energy was founded in 2006, and it currently manages more than 6,000 MW of physical power assets.
Williams’ remaining power assets are expected to be sold this year; Williams estimates its remaining power assets are worth about $50 million.
“Our exit from the power business is a natural step forward in Williams’ strategy to further increase shareholder value by focusing on and growing our core natural gas businesses,” said CEO Steve Malcolm “We expect one of the chief benefits this sale will produce for Williams is lower-cost capital. That, in turn, drives our market valuation and continued ability to pursue value-creating opportunities.”
Under the agreement, the sales amount will be reduced by expected net portfolio cash flows from the April 1 valuation date through the transaction closing date. Williams expects the transaction proceeds will be largely offset by income taxes, resolution of retained liabilities, costs associated with the transaction and near-term cash-collateral postings.
The exit from the power business is expected to reduce Williams’ business and financial risk, and it will simplify its earnings structure.
In 2006, the power business’ total revenues of more than $7 billion yielded a $211 million segment loss, which translated into $85 million in segment profit after eliminating the effects of mark-to-market accounting. In the same period, Williams’ gas businesses produced $1.7 billion of segment profit on $7 billion of total segment revenue before charges.
Williams said the move significantly improves its credit profile. The sale of the long-term power contracts will eliminate $2.4 billion of debt and related interested associated with $400 million in annual demand obligations. The transaction with Bear Energy LP is subject to the completion of standard closing conditions and certain governmental approvals. Williams will provide certain transition services through year-end. By the end of this year, Williams expects to report the power business as a discontinued operation.
The transaction is expected to close by the end of November.
“This transaction marks a substantial leap forward for our energy business,” said Bear Stearns CEO James E. Cayne. “We have taken our presence in the energy markets to a new level in a way that is consistent with our prudent approach to building businesses. This acquisition provides us with strategically located generation capacity in key markets that will position us to take advantage of improving market and regulatory dynamics.”
Bear Stearns President Paul Posoli added that his company has “great admiration for the employees of Williams Power Co. and [we] look forward to building on the customer focused franchise they’ve created. “This transaction will provide us with an immediate, geographically diverse, North American presence that allows us to broaden existing customer relationships while gaining new customers in both electricity and natural gas.”
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