Williams, WCG sued over telecom unit spinoff
Friday February 1, 8:11 pm Eastern Time
Williams, WCG sued over telecom unit spinoff
By C. Bryson Hull
HOUSTON, Feb 1 (Reuters) - Energy conglomerate Williams Cos. (NYSE:WMB - news) and its telecommunications spinoff, Williams Communications Group, on Friday faced mounting shareholder lawsuits alleging the communications venture was fraught with misstated financial results and debt.
Williams, like energy peers Dynegy Inc. (NYSE:DYN - news), El Paso Corp. (NYSE:EP - news) and Reliant Energy (NYSE:REI - news) had followed Enron's lead into the broadband telecommunications arena over the past two years. The result was Williams Communications Group (NYSE:WCG - news), which was spun off from the Tulsa, Oklahoma-based energy firm on April 23.
Many of the same law firms that are suing Enron , now under the largest Chapter 11 bankruptcy in history, on behalf of shareholders who lost millions, are bringing similar allegations against Williams and WCG in U.S. District Court in Tulsa. At least five firms have filed suit so far.
Both firms have seen their stock prices decline sharply. WCG closed at $1.42 -- compared with its 52-week high of $19.10 -- on Friday, while Williams closed at $19 on the New York Stock Exchange, less than half its 52-week high of $46.44.
The complaints generally charge that both Williams concerns misrepresented the actual finances and future potential of the telecommunications firm, which led to an artificially inflated stock price. The companies' forecasts of profitability ignore the state of massive oversupply in the fiber optic market, the suits say.
The suits also claim that the true purpose of spinning off WCG was to shunt $2 billion in debt off of the parent's balance sheet. The debt, the suits allege, was improperly noted as a contingent obligation even though Williams was actually responsible for the money and had not properly reserved for.
``The spinoff of WCG was engineered for the sole purpose of removing WCG's mounting losses and rising expenses from (Williams') balance sheet,'' said one complaint filed by shareholder law firm Scott and Scott.
The suits also claim both companies overstated revenue projections and understated expenses for WCG.
Williams countered that the suits are baseless.
``Of those suits that we have reviewed, we find that they are without merit and we will vigorously defend our character as a company,'' Williams Cos. spokeswoman Ellen Averill said.
A Williams Communications Group spokeswoman declined to comment, citing the pending litigation. The firm is expected to discuss the suits during a conference call to discuss fourth quarter earnings on Monday.
WCG owns a 33,000-mile (53,108 km) fiber optic network, which was built during an Enron-sparked frenzy that caused many traditional energy traders and marketers to enter the broadband market in the name of energy convergence, the phrase for the new breed of energy firm.
In 2000, Enron unveiled its plans to market and trade bandwidth, or the ability to move voice and data over fiber optic networks, as it did natural gas and power futures. Sparked by an enthusiastic response from Wall Street, Enron said it expected bandwidth trading to become at least as profitable as its power and gas operations, at one point projecting that it would be worth as much as $40 per share.
The massive bets the companies placed - which included the huge costs of developing the required networks and infrastructure - proved ill-timed, as the wildly overbuilt telecommunications market crashed earlier this year.
https://biz.yahoo.com/rf/020201/n01298640_1.html