good morning jake... wcg article @ red herring...
redherring.com
Williams fiber could have long-term glow
By Gracian Mack
Redherring.com
October 2, 1999
Given the explosive first-day pops of some companies launching initial public offerings last week, Friday's $680 million public debut of Williams Communications Group (NYSE: WCG) may have seemed about as exciting as 21,650 miles of pipeline.
Underwriters, led by Salomon Smith Barney, priced 29.6 million shares of the company's common stock at $23 each. In addition to the IPO, a stake worth a cumulative $725 million is being sold through private placements to SBC Communications (NYSE: SBC), Intel (Nasdaq: INTC) and Telefonos de Mexico, S.A. de C.V. (Telemex) (NYSE: TMX). The shares offered to the public opened at $27, or a premium of 17.4 percent over the offer price. Salomon along with co-managers Lehman Brothers Holdings (LEH) and Merrill Lynch (NYSE: MER) herded the newly trading shares to a session high of $31.50, before they ended the day at $28.0625, up 22 percent over the offer price.
THE ANTI-HYPE
In the pre-offering road show, however, officials delivering the Williams pitch deliberately left out promises of a quick hit, focusing instead on the fact that the company's pipes are filled with fiber-optic cables which provide voice, data, Internet, and video services to communications service providers. The buzz among Wall Street's telecommunications analysts is that the Tulsa, Oklahoma-based spinoff of natural gas giant The Williams Companies (NYSE: WMB) is a unique pure play in the fiber-optics market.
The successes of Gururaj "Desh" Deshpande's Sycamore Networks include a contract with Williams Communications.
Broadband wireless services are driving the development of a single network.
"They are the only player in the world with a completed fiber optic network that is up and working," says one Wall Street analyst who insisted upon anonymity because his firm may initiate coverage of the company after it emerges from the quiet period.
Other analysts concurred that Williams's position is a solid one.
"Williams is to telecom as TCI is to cable," says Douglas Christopher, a senior analyst at Crowell, Weedon & Co., "If you've got huge amounts of data to transmit... say you are a financial services firm or a bank... you need a full-on conduit to handle that traffic. Fiber optics is that conduit and Williams are the guys that put the cable in the ground."
Indeed, as recently as May 25, Williams Communications and Intel, the semiconductor maker, announced an agreement by which Williams would become a provider of network transport for the U.S. Web-hosting computer centers that Intel's Internet Data Services business is building. The following day Williams announced an alliance with Telmex to interconnect the companies' long-distance, fiber-optic networks. Other customers include Nortel Networks (NYSE: NT), as well as Cisco Systems (Nasdaq: CSCO), Lucent Technologies (NYSE: LU) Octel Messaging Division, NEC Corp., 3Com (Nasdaq: COMS), Bell Atlantic (NYSE: BEL), SBC and USW Communications (NYSE: USW) The lofty client list highlights the fact that Williams Communications is not one of those instantly incorporated Internet companies. In 1985 Williams, the parent, began threading its decommissioned gas pipes with fiber-optic cable. Ten years later, the company sold its Williams Communications threading unit, Wiltel Network, to LDDS Communications (now owned by MCI WorldCom (Nasdaq: WCOM) for approximately $2.5 billion. The sale included Williams's nationwide fiber optic network and the associated consumer, business, and carrier customers. Williams excluded from the sale an approximately 9,700 route-mile single fiber-optic strand on its original nationwide network, its telecommunications equipment distribution business. That single glowing fiber helped Williams Communications rack up $1 billion in sales for the six months ended June 30, 1999, up 25 percent from the $800 million reported during the year earlier half.
DISTINCTIVE DEBT
The company also reported a 355 percent increase in losses in the six months ended June 30, 1999, to almost $200 million, or $0.58 per share, up from a loss of $44 million, or $0.24 per share during the year earlier period.
Concurrent with the IPO, Williams Communications offered $2 billion in senior notes consisting of $500 million in eight-year, 10.70 percent notes due in 2007; and $1.5 billion in 10-year, 10.875 percent notes due in 2009. Investors clamoring to become creditors of the company booted the amount of the offering from the originally filed $1.3 billion amount. Switching places on the underwriting team, Merrill Lynch acted as the lead manger of the debt deal with Lehman Brothers and Salomon Smith Barney acting as co-managers.
Despite the company's income losses and a new boatload of high-yield debt, Wall Street has given Williams Communications a cautious stamp of approval. Moody's Investors Service rated the newly-issued notes a B2 and Standard &Poorsrated the company's credit worthiness Double B-minus.
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