Williams gains as investors give nod to recent events

Nashville, Tenn., March 8 - Williams Cos. Inc. has made significant progress over the past week with its efforts to short up its balance sheet, and investors have been applauding. The 9% capped convertible trust preferred issue closed at 24.35 on Friday, up from 19 on Feb. 28, and the common shares have bounced back to $22.83 from $15.75. Traders said there was only moderate volume in the converts on Friday but the stock was heavily traded.

On Friday, Williams reduced its earnings outlook and said it was cutting 4% of its workforce. The company also said it planned to sell its Williams Pipe Line unit to Williams Energy Partners for at least $900 million and expects to close that deal by the end of second quarter if not before, which came on the heels of a late Thursday announcement that it would sell its Kern River pipeline for $950 million in cash and assumed debt to a Bershire Hathaway unit.

"The asset sales were unfortunate because especially the Kern River pipeline is a good property and I'm sure they hate to lose it, but all of the events of the past week are definitely signs that the company is very serious about correcting its situation," said a convertible trader at a major investment bank in New York.

"Having Warren Buffett on its side certainly bodes well for Williams because people watch what he's doing, what he's buying or selling."

On Thursday Williams announced Buffet's MidAmerican Energy Holdings Co. invested $275 million in Williams through a purchase of 9 7/8% convertible preferred stock.

Earlier this week Williams managed to reach an agreement with noteholders of its former Williams Communications Group subsidiary that disentangled it from WCG in the event of bankruptcy.

"The upshot is a slightly better outcome than we'd envisioned and an enormous easing of the nail-biting uncertainty for bondholders," said Carol Levenson, director of research at Gimme Credit, an independent research firm based in New York.

Morningstar analyst Rob Plaza said investors now should focus on Williams' outlook.

"We expected Williams' report of a big quarterly loss," given the WCG situation, Plaza said, and it appears all the bad news was priced into Williams' securities. Now, with the asset sales of the past couple of days, he said, "If Williams continues making these types of deals to strengthen its balance sheet, then our worst-case scenario valuation (is) probably too conservative."

Williams said it expects 2002 earnings per share of $2.15 to $2.30 and first quarter EPS of 40c to 45c , with 15% year-over-year EPS increases starting in 2003. The company also pledged to cut its debt-to-capital ratio to 57% at the end of 2002 from 71% at the end of last year. In addition to the job cuts, Williams said it is now budgeting 2002 capital expenditures of $2.3 billion - down from the original budget for $4 billion in capital expenditures, which had been trimmed by $1 billion in December.

"Out of all the members of the Enron peer group initiating balance sheet enhancement programs since December, we'd have to say Williams has accomplished the most the quickest," Levenson said.

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