Bear Sterns to Become Largest "Physical" Energy trader on Wall Street as Williams Cos. to Sell Power Assets To Bear Stearns' Energy Unit
By KEVIN KINGSBURY
May 21, 2007 9:46 a.m.
Williams Cos. agreed to sell substantially all of its power assets to a unit of Bear Stearns Co.'s for $512 million, getting the company out of the electricity business.
Williams, a Tulsa, Okla., natural-gas explorer and transporter, is selling about 7,700 megawatts of gas-fired tolling capacity, 1,800 megawatts of power-supply contracts and an associated trading book.
"Our exit from the power business is a natural step forward in Williams' strategy to further increase shareholder value by focusing on and growing our core natural-gas businesses," said Williams Chairman and Chief Executive Steve Malcolm. "We expect one of the chief benefits this sale will produce for Williams is lower-cost capital. That, in turn, drives our market valuation and continued ability to pursue value-creating opportunities."
Williams' power business had a 2006 loss of $211 million on revenue of more than $7 billion. The company said getting out of that sector will reduce Williams' business and financial risk and liquidity needs.
At the same time, the firm said its credit profile will "significantly" improve as the sale allows Williams to eliminate nearly $2.4 billion of debt and related interest.
"This transaction marks a substantial leap forward for our energy business," said Bear Stearns Chairman and CEO James E. Cayne. "We have taken our presence in the energy markets to a new level in a way that is consistent with our prudent approach to building businesses. This acquisition provides us with strategically located generation capacity in key markets that will position us to take advantage of improving market and regulatory dynamics."
Bear Stearns is positioning itself as the largest "physical" trader of energy on Wall Street at a time when other banks, hedge funds and private-equity firms have been trading energy "financially." The distinction between the two is that physical trading involves the movement of actual power, natural gas and other commodities between buyers and sellers. Financial traders buy and sell energy derivatives -- futures, options, swaps and other complex contracts -- but don't take possession of the product itself.
In November, Bear Stearns increased its presence in the power sector with its acquisition of Delta Power Co., a private power-plant developer with 1,380 megawatts of capacity under management.
Bear Energy President Paul Posoli said in March the company managed 8,000 megawatts of power generation for clients.
Mr. Posoli, who was a senior executive at Calpine Corp., came to Bear Stearns in April 2006 following Calpine's slide into bankruptcy in December 2005. Bear Stearns and Calpine had been working to set up a joint energy-trading venture. The venture fell apart after Calpine, San Jose, Calif., filed for bankruptcy-court protection, and Bear Stearns started its own business, hiring Mr. Posoli and a number of former Calpine traders.
The Williams deal is set to close within six months and add to Bear Stearns' fiscal 2008 earnings.
Williams expects the sale's proceeds to be largely offset by income taxes, resolution of retained liabilities, the deal's costs and near-term cash-collateral postings.
After a serious liquidity crunch several years ago when energy trading imploded, Williams repositioned itself as a natural-gas exploration company with numerous interstate-pipeline assets. Since, the company has been the subject of sporadic takeover talk.
Shares of Williams jumped to $30.50, or 5.3%, in early composite trading on the New York Stock Exchange. Bear Stearns fell 65 cents to $148.92. |
