Williams Moves into the Northeast

On December 12, the Williams Companies Inc. and Transco Energy Co. announced a cash tender offer by Williams to acquire up to 24.6 million shares, or 60 percent of Transco stock, for $17.50 per share. Combined with assumed debt and preferred shares, Williams' acquisition cost will total about $3 billion. Following completion of the tender offer, a newly formed subsidiary of Williams will be merged into Transco, with Transco continuing as a wholly-owned subsidiary of Williams. The boards of directors of both companies have unanimously approved the transaction. Williams also is in the process of selling its fiber-optic company, WilTel Network Services, for $2.5 billion. Some proceeds of this sale will be used to fund the Transco purchase.

The proposed merger caused Duff & Phelps (D&P) Credit Rating Co. (D&P) to place Williams on rating watch-"uncertain"-reflecting the added leverage and weakened quantitative credit-protection measures that would result from the acquisition of Transco. From a strategic standpoint, however, D&P says it views the acquisition positively. D&P modified the rating watch direction of Transco from "uncertain" to "positive," finding that acquisition by the financially stronger Williams will provide additional resources to service Transco debt and afford greater operating and financial flexibility.