(Corrects spelling of Buffett on fourth screen.)
Steven Malcolm, chief executive officer of Williams Cos., talks with Bloomberg's Mark Johnson via telephone about the company's plans to sell as much as $1.5 billion in stock and $3 billion in assets over the next year to raise cash and reduce debt. Williams is the No. 2 U.S. natural gas-pipeline owner
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
JOHNSON: The Williams Cos. is an energy trader and the number two U.S. pipeline company. Today, the company said it planned to sell more assets and shares in an attempt to improve its finances and balance sheet among - amidst increased scrutiny from credit rating agencies on the energy sector.
Welcome, Mr. Malcolm.
MALCOLM: Thank you.
JOHNSON: Tell us a little bit about the more - the equity you're going to be selling and the assets you're looking at selling?
MALCOLM: Well, as we announced today, we believe that this is the right thing to do. These are steps that are necessary to address the environment that we're faced with, the credit cloud that is over our company, and, most specifically, our marketing and trading business unit. We need to regain confidence in that marketing space, with respect to the long-term, large-structured transactions that - and that business that we've been pursuing over the last few years very successfully.
And so we are going forward with what we call a $3-billion enhancement plan that will improve our financial situation. And the components of that include the issuance of between 1 billion and 1.5 billion of common equity and the sale of an additional $1.5 to $3 billion worth of assets, the net proceeds of which, both of those steps, will be used to pay down debt and increase liquidity. We're also looking to reduce annual costs by $100 million a year through some streamlining and consolidation, and I think that we're well on our way towards achieving that goal.
We're also looking to focus on living within our means, and, by that, I mean that we will fund all of our capital expenditures from cash flow from operations. So it's a fairly detailed approach, but one that we think is very necessary in today's environment.
JOHNSON: The sale of the 1 billion to 1.5 billion in common equity will occur when?
MALCOLM: We're expecting that to occur over the next 6 to 12 months. And as you may or may not know, we've already had great success in selling assets already this year .
JOHNSON: That was 1.1 billion in the - was that convertible securities that were sold, as well as 1.5 billion in bonds, correct?
MALCOLM: Right, but I was talking about the asset sales that we've been able to .
JOHNSON: Oh, the asset sales.
MALCOM: Right. We have been successful in selling over $2 billion worth of assets, and those range from gas pipelines to products pipelines to some non-core assets in the Rockies and in the midstream area. And I think we have created a lot of credibility in terms of when we say we're going to do something, we do it. And I feel very confident that we'll be able to be successful in selling this additional group of assets.
JOHNSON: Now, a large chunk of those asset sales came with the sale of a pipeline to MidAmerican Energy Group, which is owned by - controlled by Warren Buffett's Berkshire Hathaway. Do you have any more deals in the works with Berkshire Hathaway?
MALCOLM: Well, I wouldn't want to comment on negotiations that we have ongoing, but certainly, MidAmerica has indicated that they have $11 or $12 billion of capital that they want to invest in energy assets, so we'll certainly be talking to them.
JOHNSON: In light of the fact that you, along with many other energy companies, are selling assets, what kind of market is there out there? Is this more of a buyer's market now?
MALCOM: Well, there continues to be a fairly robust market. You've got some of the growing and emerging MLPs that seem to have a very strong appetite for a lot of these assets that we'll be wanting to sell. So, I don't necessarily see this as a buyer's market.
JOHNSON: By MLPs, you mean master limited partnerships, correct?
MALCOM: Yes, sir.
JOHNSON: OK. And the company also today said it was evaluating the level of its common stock dividend. Are you guys considering cutting it, then?
MALCOLM: Well, we have many levers that we can pull, in terms of getting to where we want to be. And, you know, the reason that we mentioned it is obviously that's another lever that we could pull, if we believe it's necessary.
JOHNSON: In the cost-cutting measures, where are most of those costs coming - cost-cuts coming? I know you mentioned streamlining and consolidation. Is that through workforce consolidation?
MALCOM: Yes. What we're talking about there, essentially, is consolidating our shared services groups. So Williams, now that it is an energy-only company, has shared services groups scattered about its various energy business units. I'm speaking there about finance and IT and human resources, those kinds of groups. We believe by consolidating those at corporate, that there is - are some significant cost savings. And we have given those groups about a $50-million target. We did go through an early retirement program and I think some 250 or so employees accepted that opportunity. So, yes, there's no doubt that fewer bodies will be part of the plan.
JOHNSON: Today, of course, also, Mr. Watson, the CEO of Dynegy, resigned, amid some scrutiny over their energy trading. What are your thoughts on this and - in light of CMS's CEO retiring or resigning last week?
MALCOLM: Well, I was certainly surprised when I read about Chuck's resignation, but I think it just points up the environment that we are living in, the uncertainty in the marketplace, and I think this just points up and reinforces the steps that we're taking today to address the situation.
JOHNSON: Can you speculate as to any kind of - what this would do for a company, alleviate pressure on it? Obviously, Dynegy was under increasing scrutiny for its energy trading. And Williams, like other companies in the sector, has had to answer FERC questions about their trading practices in California.
MALCOLM: No, I wouldn't want to speculate on, you know, the Dynegy move, and what that does for them. I hope you're aware that we came out with the results of our internal analysis of the FERC request and believe that we've done everything with the highest lawfulness and certainly haven't done anything wrong in that area.
JOHNSON: Of course, Williams has said publicly that you have engaged in very few of the transactions that were even similar to the ones used by Enron that were detailed in these memos, such as Fat Boy and Death Star, but that none of them were done to falsely inflate revenue or profit, correct?
MALCOLM: Now, what we've pointed out is that we have a completely different business model than most in the space that we've focused on the long-dated, large-structured transactions, which does give us a different business focus. We haven't looked to increase volumes unnecessarily, and we've been a net revenue reporter, I think the only one, in this marketing and trading space. So, for those reasons, obviously, we were not interested in doing any of these round-trip kinds of transactions, nor, obviously, did we have any strategies - corporate strategies in mind that were pursuing some of the things that came out in those Enron memos.
JOHNSON: The company mentioned, also, that it was considering forming a joint partnership for energy trading, should its credit rating fall. Are you - can you say about how many such companies or what types of companies you're talking to about this? Is it another energy trader or a bank, somebody along those lines?
MALCOLM: Well, these, you know, we would prefer not to enter into those kinds of deals, because obviously they probably cause us to share some of the upside associated with this opportunity. But given the credit cloud that we're faced with, and the fact that there continues to be a lot of demand out there for us to do deals, we want to address this as quickly as possible. And one of the potential solutions involves us entering into some kind of JV or partnership with a financial partner, or with an energy partner, that would bring a strong balance sheet to the table and would allow us to solve the problem.
JOHNSON: OK. Time for one last question. Mentioned on the conference call today was a white paper coming out by Moody's on what they will expect from companies such as yours. When do you expect that, and what do you expect to see in that?
MALCOLM: Well, let's see what it says when it comes out. I mean, we saw an early draft of it .
JOHNSON: You did?
MALCOLM: . and certainly provided comments, and certainly endorsed some of the thoughts that Moody's had, in terms of liquidity levels and things like that. Obviously, we believe that the steps that we're taking today will address many of the concerns raised in that white paper.
JOHNSON: Can you say then that you will - do you have confidence that you will not be downgraded in any way?
MALCOLM: I don't want to predict what the rating agencies may do in this environment. I continue to believe that we're going to continue to be investment grade.
JOHNSON: And, also, in the streamline process, can you say how many jobs will actually be eliminated?
MALCOLM: No, I can't, because I don't know.
MALCOLM: As I said, I think about 250 employees accepted the early retirement package that we offered. I don't know how many additional reductions that we're going to be looking at.
JOHNSON: OK. Thank you very much for your time. This is Mark Johnson. We've been speaking with Steve Malcolm, the CEO of Williams Cos.
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