posted 10-19-1999 09:09 AM         

"Go figure: When Williams Cos. did a spinoff of its Williams Communications unit two weeks ago, it kept 86% for itself and thought that by doing so, its stock would rise and fall in proportion with its stake in Williams Communications. Williams Cos. is in the oil and gas biz, while Williams Communications operates a telecommunications fiber network -- a telecommunications fiber network that has been the target of takeover rumors in an industry that is rapidly consolidating. 'They did the offering for the very purpose of showing the value that they thought would be reflected in the communications group,' says Goldman Sachs analyst David Fleischer. Instead, since the split, the opposite has happened: While Williams Communications has gone up by 7 (or 30%), Williams Cos. has gone down by almost 4 points (or 9%) -- the amount analysts thought it should've risen. The slide in Williams Cos., in part, reflects concerns about near-term earnings of its existing biz. Still, Fleischer and other analysts are dumbfounded by the slide in Williams Cos. for a simple reason: Based on its close Friday of 34 7/16, when using an arbitrage calculation, Wall Street is valuing the non-Williams Communications part of Williams Cos. -- the oil and gas biz -- at $7. Seven bucks for a biz that Fleischer values at $22 per share. The spread is so wide, in fact, that analysts are chatting up Williams Cos. as a cheap way to gain entry into Williams Communications. They're betting that if Wall Street doesn't recognize the true value of Williams Cos., CEO Keith Bailey will spin off all or part of Williams Communications the way he sold off part of WilTel four years ago. That would leave Williams Cos. with plenty of cash and a host of valuable energy assets."