Williams continues hot streak; U.S. Energy seeks alternatives; Office Depot drops after rumor-linked surge

By Evan Weinberger

New York, July 20 - Two energy companies at opposite ends of the spectrum in both production and corporate stability made headlines Friday.

The Williams Cos. Inc. announced a major corporate restructuring involving its interstate gas pipeline business and a stock buy-back. At the same time, troubled alternative energy producer U.S. Energy Systems Inc. announced that it had hired an investment bank to help it explore strategic options.

Tulsa, Okla.-based Williams announced that it was setting up a new publicly traded master limited partnership whose initial asset will be an interest in Williams' Northwest Pipeline, which services the Canadian Rockies and the Pacific Northwest. The company also announced that it would start an ongoing $1 billion buyback of common stock.

Meanwhile U.S. Energy announced Friday that it was looking into its strategic options Friday and hired Jefferies & Co. Inc. to help it sift through potential alternatives. The company has been facing a mounting pile of problems since the end of June, when it announced that it may be forced to default on some of its debt. That led to the suspension of the company's chief executive officer and the appointment of an interim CEO.

Also making news Friday was Office Depot, Inc. Rumors swirled in the morning that the Delray Beach, Fla.-based office products retailer was going to receive a buyout offer, according to one market source. The rumors picked up steam upon one big trade in the morning of Office Depot stock (NYSE: ODP), but then all went quiet.

"There was a big trade in the morning and that got people talking, but that was the end of it," the source said.

Office Depot closed 14 cents, or 0.47%, lower at $29.45 to go along with the Dow Jones Industrial Average's nearly 150 point plunge Friday.

Despite assurances to the contrary, rumors persist that the Cerberus Capital Management's deal to buy Chrysler from DaimlerChrysler AG may be in trouble, according to a market source. On Friday, Chrysler Group chief executive Tom Lasorda said that the deal was close to completion and that Cerberus had the firm commitments from banks for the $7.4 billion transaction.

Along with that announcement, Detroit automakers Daimlerchrysler, Ford Motor Co. and General Motors Corp. began negotiations on a new contract with the United Auto Workers Friday.

DaimlerChrysler stock (NYSE: DCX) fell $2.34, or 2.54%, to close at $89.75. The market source said part of the decline could be attributed to the rumors of problems with Cerberus' takeover of Chrysler.

Overall, the Dow lost 149.33, or 1.07%, to close at 13,851.08. The Nasdaq also lost big, dropping 32.44 points, or 1.19%, to finish at 2,687.60.

Williams confident on growth

The creation of a new master limited partnership to manage a gas pipeline in the Pacific Northwest and the Canadian Rockies coupled with the buyback of $1 billion in the company's common stock are signs, according to the company, that Williams' current business portfolio and investment strategies will continue the strong growth of the last year.

Williams announced the two deals Friday in a press release. The new MLP will have as its main asset the Northwest Pipeline, a 3,900 mile two-way natural gas pipeline that accesses natural gas supplies in Western Canada and the San Juan Basin of the Pacific Northwest to service communities along the Pacific coast in both the United States and Canada.

The MLP will be publicly traded, and a new, yet-to-be-named Williams subsidiary will serve as the general partner of the MLP. Williams already has a similar agreement with Williams Partners LP, which completed its initial public offering in August 2005.

"The new, gas pipeline MLP is complementary to our existing, very successful midstream MLP," Williams chairman, president and CEO Steve Malcolm said in a statement. "We remain focused on our commitment to drive growth in Williams Partners through a combination of drop-downs, third-party acquisitions and organic growth."

The stock buyback, which is being financed by Williams with cash on hand, is another sign of confidence stemming from the strong growth of the past year. According to Malcolm, Williams shareholders have seen a nearly 50% increase on their investment in the last year, better than double the S&P 500's performance.

Williams' stock repurchase plan has no time limit and will be done with open-market transactions or through privately negotiated or structured transactions at the company's discretion from time to time.

Proceeds from the start-up of the new MLP will go toward general corporate purposes and previously announced acquisitions, Williams said in its announcement.

"Williams has a solid record of value creation, and these actions are part of our ongoing efforts to continue delivering superior returns," Malcolm said.

On Thursday, Standard & Poor's put Williams on its credit watch list with a positive implication. Fitch Ratings also released a positive rating on Williams Friday.

Wall Street reacted well to Williams' announcement Friday and the S&P ratings advice. On a day when equity markets nosedived, Williams stock (NYSE: WMB) finished up $0.33, or 0.96%. The stock closed at $34.72.

Alternative power maker seeks alternatives

Troubles continue to mount for alternative gas producer U.S. Energy Systems. About a month after announcing that it may not have enough cash to continue operations for the year, the company announced Friday that it had hired Jefferies & Co. to help it sift through its alternatives.

On June 25, U.S. Energy announced that bankruptcy or insolvency proceedings may be in the offing if it couldn't find ways to raise capital. U.S. Energy has alternative gas and natural gas operations in both the United States and the U.K.

The problems New York-based U.S. Energy is facing stem from its inability to raise funds to complete gas projects in the U.K. If the projects aren't completed, then it may default on financing agreements in Britain, the first of which begin coming due in August.

In the face of its problems, U.S. Energy suspended chief executive Asher Fogel and executive vice chairman and secretary Adam Greene. Richard Nevins, formerly the managing director and co-head of restructuring and recapitalization at Jefferies, was named interim CEO July 5.

U.S. Energy stock (Nasdaq: USEY) was relatively unchanged Friday, closing down 3 cents, or 1.6% at $1.84.

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