Posted: 01/2001
Williams Communications May Leave Parent
By Josh Long
Williams Communications (www.williamscommunications.com), buoyant after nearly completing its 33,000-mile Multi-Service Broadband Network a year ahead of schedule, may separate from Williams (www.williams.com), its energy parent company.
The decision could give investors a clearer picture of the carrier's identity and help raise the company's value on Wall Street, analysts say.
The board of directors of Williams, which owns approximately 85 percent of Williams Communications, authorized its management to continue pursuing a tax-free spinoff of the company's communication business, executives said last fall.
The board was expected to vote on the measure possibly early this year. Under a spinoff, a ratio of a share of the carrier's stock would be issued for each share of Williams' stock, executives say.
"The benefit to the potential [spinoff] is that we are taking the expertise and value we have in our company and hoping to increase our shareholder value" and raise growth for capital, says Lisa Price, Williams Communications spokesperson.
Analysts say a spinoff would give the carrier its own identity, which is growing more rapidly than that of its parent, and draws a different breed of investors than those who cover the more stable energy business.
"We know Wall Street has trouble deciding which analyst will cover a company that has connections with utility and telecom," says Judy Reed Smith, CEO of Boston-based consulting firm ATLANTIC-ACM Inc. (www.atlantic-acm.com). "In order to get the attention of the right analyst, they would be well served to separate themselves."
A spinoff also removes uncertainty as to the company's future, says RHK Inc. (www.rhk.com) analyst Brian Van Steen. "Wall Street typically does not like uncertainty."
ATLANTIC-ACM analyst Taher Bouzayen adds that "shareholders cannot really get a 100 percent reward on the performance of Williams Communications" because its parent company partially undermines the carrier's position.
Bouzayen believes the carrier implied in its business plan that it would become independent after a few years. Price, who compares the company's desire to pursue a possible spinoff to a senior gearing up for college, says the carrier is prepared for its independence.
It seems that way: Having established rights of way through its parent company, executives said last fall that they expected to reach 33,000 lighted and operational route miles and 125 cities on its broadband network by the end of 2000. And while stocks across the telecommunications industry have plummeted and companies are finding it increasingly difficult to raise capital, Williams Communications has something that college kids need when they move away from home: money. The carrier has more than $1.1 billion in cash through its parent company and venture capital, Bouzayen says.
In October, Williams Communications recorded unaudited third-quarter revenues of $533.8 million, including a 32 percent increase compared with the second quarter in recurring domestic network services revenue, a hike executives attribute to the use of the company's fiber optic capacity on its multiservice broadband network.
Meanwhile, Williams Communications has acquired key customers, ranging from SBC Communications Inc. (www.sbc.com) and KDD America Inc. (www.kddiamerica.com) to MariTEL Inc. (www.maritelusa.com).
Executives say they have signed new contracts worth about $3 billion in revenue.
SBC, which has a 4 percent stake in Williams Communications, represents a hefty chunk of the carrier's potential revenues. SBC now delivers long-distance service in Texas through Williams' backbone. But once it can deliver long-distance in all 50 states, Bouzayen says, the alliance could be worth about $1 billion a year, which is half the revenue Williams Communications reported in 1999.
That amount of money--and strategic planning--is enough to make most parents proud.
