Williams CEO explains why a takeover is less likely today

TULSA — A year ago, Williams Cos. was getting up from the mat, having been knocked off its feet by a failed merger attempt and what its CEO described as “upstairs issues.”

Nothing is preventing another takeover attempt similar to the scuttled one by Dallas-based Energy Transfer Equity, but Williams CEO Alan Armstrong said the company has spent the last year refocusing, shedding debt and working to strengthen its core.

In response, the company’s stock has risen about $10 over the past year, making it a more expensive target for takeover.

“I think continuing to execute very well as a team, which we’ve been doing a great job of, is a way to distinguish ourselves from our peers and make sure our stock price reflects the value of our business,” he said.

“That’s what we’re focused on and that’s what will keep us healthy and independent.”

Last summer, tension in Tulsa was high because one of the city’s largest employers was in danger of being purchased and dismantled. Leaders at Energy Transfer Equity (ETE) indicated they would gut Williams, which at the time had more than 900 employees in downtown Tulsa, and relocate most of its remaining jobs to Texas. Originally, ETE had promised to keep “a meaningful presence” in Tulsa.

Moving away from risk

Refocusing the company started nearly immediately after the merger was called off, and six members of the 13-member board resigned after a failed attempt to oust Armstrong as CEO.

As Williams set out to replace those board members, there were several industry leaders willing to join and help reposition the company, Armstrong said.

“They saw the discourse that had kind of occurred with the previous board and the activists involved, and I think they were very anxious to do what they could to step up and help the company get back on its feet,” he said.

Once the new board members were in place, the company began a financial restructuring, selling some of its riskier assets in a move away from the short-term value approach favored by some of the activist investors previously on the board.

“If you think about long-term value, you want to move away from a riskier balance sheet and away from incentive distribution rights because they’re less reliable,” he said. “This really put the company on very solid financial feet.”

Two major moves in that effort were the sale of Canadian assets to Inter Pipeline Ltd. for $1.06 billion, and the sale of its interest in the Geismar olefins facility to NOVA Chemicals for $2.1 billion.

The Geismar sale included an agreement for Williams Partners subsidiaries that would provide a long-term, feebased revenue stream for the company. Those two sales allowed for significant debt reduction at both Williams and Williams Partners.

While other local companies have purchased their master limited partnerships recently — ONEOK bought the outstanding units of ONEOK Partners and SemGroup Corp. acquired Rose Rock Midstream — it doesn’t appear that Williams is interested in following suit.

Armstrong said there is no motivation at the moment for Williams to purchase Williams Partners, but it could be a sensible move in the future.

“Given the current lack of certainty in tax reform right now, it’s pretty hard for us to even know what that roll up would be worth to us, because we don’t know where things are going to wind up,” he said.

Target: Transco pipeline

Keith Goddard, CEO of Tulsa-based Capital Advisors Inc., said Williams Cos. may always be a potential target because it controls the Transco pipeline and its adjacent connections.

Transco, one of Williams’ biggest assets, is more than 10,000 miles of pipeline that moves natural gas between the Gulf Coast and cities along the southeast and Atlantic seaboard.

Goddard said the actions that the company has taken to simplify the structure between Williams Cos. and Williams Partners have reduced the odds of an unsolicited takeover attempt for now.

“That effort effectively pre-empted the kind of restructuring an unsolicited suitor might have pursued,” he said. “The strong recovery in Williams’ stock price since the two activist board members resigned has been far more rewarding for shareholders than the Energy Transfer fiasco would have been ... and the difference for the city of Tulsa is almost unimaginable.”

Armstrong said the abundance of low-cost natural gas in the country provides tremendous growth potential for Williams.

He believes that the company will be able to build out its infrastructure to transport the product.

“We have a tremendous advantage over the rest of the world right now, because the independent producers in the U.S. have done a terrific job of learning how to get the gas out of the ground cheaper and cheaper,” he said. “We are in the position to grow our volumes dramatically on the backs of those low costs.”