Williams Goes for the Cash

In an effort to shore up its cash position, Williams Communications Group (NYSE: WCG) has been selling off the bulk of optical networking shares it bought during last year’s booming IPO craze.

In the past month, Williams has sold 1.6 million shares of its ONI Systems Inc. (Nasdaq: ONIS) shares, 2.5 million shares in Corvis Corp. (Nasdaq: CORV), and 274,392 shares of Sonus Networks Inc. (Nasdaq: SONS). In total, this has generated more than $70 million in cash for the company. This is a far cry from what these investments could have generated for Williams when the market was at its peak. At the time of the sales last month, ONI was selling for about $25 to $30 a share, down from a high of about $111, and Corvis was near an all-time low of $4, down from its high of about $108 a share.

Williams contends its cash position is secure and that the massive selloff is all part of its investment strategy.

“We develop strategic investments with our Tech Farm system partners early in their development,” says a company spokesperson. “The sale of our ONI shares was part of a broader and established strategy of monetizing our technology investments on an on-going basis.”

Light Reading's research service, Optical Oracle, recently analyzed Williams's cash flow situation after the company's last quarterly report. Cash flow was down significantly to $96.5 million from $213.9 million quarter over quarter. Long-term debt was up to $4.9 billion from $3.6 billion quarter over quarter, and the loss from continuing operations widened to $302.2 million from a loss of $86.2 million. In the Optical Oracle report, Williams ranked 12th out 14 carriers, based on an assessment of financial and technology positioning.

But just last week the company issued a press release to investors claiming that its cash position is rock solid. Over the past six months the company has secured new financing and sold assets to generate between $4.4 billion and $4.6 billion worth of liquidity, according to the release issued on July 10th. The company believes that these deals will provide enough cash well into 2003. The company also expects to meet or exceed second-quarter EBITDA expectations.

In addition to selling off its preferred stock, the company also sold off part of its business. In May it closed a deal to sell Williams Communications Canada Inc. (WCCI) to British Columbia-based Telus Corp. (NYSE: TU; Toronto: T), giving the company about $400 million in cash. Then it announced an agreement to sell of its stake in Brazilian wireless provider Algar Telecom Leste (ATL) to América Móvil. No specific amount has been released on this deal. Not everybody is wary about the company's recent moves to raise cash. Vik Grover, an analyst with Kaufman Bros. LP sees this as a good sign that Williams will be able to weather the rocky financial storm.

“Williams is a victim of a telecom witch hunt,” he says. “They aren’t in financial trouble. They still have a lot of work to do, but they have been working on securing the capital they need to go forward, and I think it looks good.”

Others aren't as optimistic. This morning J.P. Morgan & Co. initiated coverage of Williams with a Market perform rating. The firm said it is "unlikely" that Williams will meet its forecast of 60 percent to 65 percent annual network revenue growth for 2001 through 2005.

Bondholders are also skeptical. Williams’s bonds have been trading at about 30 percent yield, and the stock is trading at $2.25.

“This means that people in the bond market think they’re headed for bankruptcy,” says a bond dealer who wishes to remain anonymous. “Maybe not in the next couple of quarters, but probably within the next 18 months.”

Still, Williams seems to be in a better position than some of its competitors, like Level 3 Communications Inc. (Nasdaq: LVLT). “Williams has done a better job of monetizing its assets than some of the others like Level 3,” adds the bond dealer. “But ONI is really overvalued right now, so Williams should sell every share they can.”

On the upside, one of Williams's largest customers, SBC Communications Inc. (NYSE: SBC), is currently seeking approval to enter the California long-distance services market, which could offer a jolt of revenue to Williams.

Williams reports quarterly earnings results on August 1, 2001.

- Marguerite Reardon, Senior Editor, Light Reading

Editor's Note: Light Reading is not affiliated with Oracle Corporation.

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