Williams Renews Spin-off Plan - Analyst Blog

In a revised plan outlined by Williams Companies’ (WMB) board of directors,the company will move ahead with the proposed separation of its exploration and production business, delaying plans for an initial public offering (IPO) for the separated part.

Per the new strategy, Williams will go for a tax-free spin-off by the end of 2011, forming two stand-alone, publicly traded corporations. The newly formed exploration and production business, named WPX Energy, Inc, will trade on the New York Stock Exchange under the symbol "WPX.”

By comparison, the previous plan entailed the company to carry out an IPO of WPX Energy in 2011, followed by a spin-off in first-quarter of 2012. However, volatile equity market conditions compelled the company to diverge its plans.

Williams approved the spin-off in February and in April, WPX Energy filed a registration statement for the proposed IPO with the Securities and Exchange Commission.

Post split, the parent company will operate as a midstream infrastructure and natural gas pipeline firm in North American, while the newly formed exploration and production company will focus on South America along with operations in key North American oil plays.

We believe that this spin-off will allow both companies to pursue opportunities in their respective market segments and better serve the needs of both investor groups without the constraints of the parent company.

In recent times, many oil and gas companies have segregated their less profitable segments to concentrate on their core business areas. In July, Marathon Oil Corporation (MRO) completed the spin-off of its refining and sales business into a separate, independent and publicly traded company Marathon Petroleum Corporation (MPC) to focus on its profitable business of finding and producing energy.

Tulsa, Oklahoma-based Williams Companies is an integrated energy firm that primarily finds, produces, gathers, processes and transports natural gas primarily in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania.

We maintain a long-term Neutral recommendation on the stock. The company currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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