The Williams Companies, Inc.

views updated

The Williams Companies, Inc.

One Williams Center
Tulsa, Oklahoma 74172
U.S.A.
(918) 588-2000
Fax: (918) 588-2296

Public Company
Incorporated: 1908 as The Williams Brothers Corporation
Employees: 4,442
Sales: $1.82 billion
Stock Exchanges: New York Pacific

The story of The Williams Companies, Inc. is that of two different entities: the small, privately held pipeline-construction business that Williams was for the first part of its history and the major corporation in the making that it has been for the second part. In the early 1990s Williams not only operated pipelines that transport natural gas and petroleum products throughout the midwestern United States to the Pacific Northwest; it also operated digital telecommunications networks from coast to coast.

Williams traces its history to 1908, when brothers S. Miller Williams Jr. and David R. Williams were working for a construction contractor who had an order to pave sidewalks in Fort Smith, Arkansas. The contractor pulled out when funding for the project was delayed, but the Williams brothers decided to take care of the job themselves. They stayed in the construction business after the Fort Smith job, making their headquarters in that city and working under the name The Williams Brothers Corporation. Eventually, they established steel-pipeline construction as their specialty, and in 1924 they moved to Tulsa, Oklahoma, in the heart of oil and gas country.

Williams Brothers remained a family-run business, small and privately held, for the next 25 years. Although the company maintained its headquarters in Tulsa, the petroleum and natural gas industries were not its only customers. When Miller and David’s nephew, John H. Williams, joined the firm just after the bombing of Pearl Harbor, his first job was to help lay a water line for the U.S. Navy between Homestead and Key West in Florida.

In 1949 the Williams brothers decided to sell the company to their nephew John and his brother Charles, David Williams Jr., David’s son, and six middle managers. The new owners reincorporated under the name Williams Brothers Company, with initial capitalization of $25,000 and bought the old Williams Brothers’s construction equipment for $3 million in debt. John Williams, who put up $5,000 was named president and CEO. Although only 30 years old, he had led an unusual and varied life. Born and raised in Havana, where his father was a distributor for a number of U.S. companies, he did not learn English until he was five years old. His uncles paid his expenses at Yale, from which he received a degree in engineering in 1940. In 1942, during World War II, he left Williams Brothers to join the navy. He returned to the family firm in 1946.

The new Williams Brothers’s first job ended with unfortunate results. The company had received a $7.5 million contract to build a pipeline from Baton Rouge, Louisiana, to Greensboro, North Carolina, but flooding caused by unusually heavy rains damaged the company’s equipment, and the company actually lost $800,000 on the job. Within five years, however, it had made enough money to pay off its initial debt. In 1957, with a net worth of $8 million, it went public.

By the early 1960s Williams Brothers had established itself as a leader in its field, but a severe slump in the demand for new pipelines threatened its profitability. In 1963 the company lost $4 million on its domestic operations, and only strong overseas business limited its overall net loss to $500,000.

John Williams saw his first big opportunity to diversify in 1965, when he spotted an article in The Wall Street Journal, announcing that Great Lakes Pipe Line Company was for sale. Great Lakes Pipe Line had been founded in 1930 by a consortium of eight U.S. oil companies—Continental Oil Company, Sunray DX Oil Company, Skelly Oil Company, Texaco, Union Oil Company of California, Sinclair Oil, Cities Service, and Phillips Petroleum—to service the Midwest. A recent federal consent decree limiting Great Lakes’s profit to 7% convinced the owners that their resources were better spent elsewhere. The Williams’s, for their part, believed that they could run the pipeline better than the oil companies, and Williams Brothers was one of the first parties to offer a bid. It was the only one left standing when the dust settled.

The Great Lakes pipeline network was the longest in the United States, consisting of 6,228 miles of pipe and 20 terminals. Its purchase price was $287.6 million. Williams Brothers’s net worth in 1965 was $27 million. In lining up the financing for the deal, the company had to borrow almost the entire amount, making it a leveraged buyout (LBO) that would be audacious even by the standards of the LBO mania that would grip Wall Street 20 years later. Williams Brothers paid only $1.6 million of its own cash for Great Lakes Pipe Line.

The Great Lakes Pipe Line deal left Williams Brothers with a high debt-equity ratio, 89%—it would shoot up to 160% by 1970—but this did not deter John Williams from seeking new avenues for growth and diversification. In 1969, in a stock swap, the company acquired Edgcomb Steel Company, that processed and distributed metal products in the East and Midwest. At the same time, Williams Brothers began to look into the fertilizer business as another possibility. Fertilizer manufacturers were then suffering from low demand and oversupply, and the Williamses wanted to buy into the business while such companies were cheap.

In 1971 the company acquired The Suburban Companies, a liquid-propane gas retailer. It also bought Colonial Insurance Company, a move that John Williams would later call his worst acquisition; uncharacteristically, the company had not secured a competent insurance executive ahead of time to take charge of Colonial, and it floundered as a result. It was sold off in 1974. Williams Brothers had become a diversified enterprise, and in May 1971 it recognized that fact by changing its name to Williams Companies.

In 1971 the company finally bagged a fertilizer company when it acquired Gulf Oil Corporation’s agrichemical operations for $60 million. The next year, it added Agrico Chemical Company, Continental Oil Company’s fertilizer subsidiary, for $140 million and merged the two operations under the Agrico name. John Williams then brought in his friend Kenneth Lund-berg, CEO of major farm cooperative CF Industries, to head Agrico. The timing of these two acquisitions could scarcely have been better. Fertilizer prices turned up almost immediately. In 1974 Williams as a whole posted $950 million in sales—up from $235 million in 1970—and more than half of that figure was supplied by Agrico.

The company formed a new subsidiary in 1974, Williams Exploration Company, and branched out into the business of drilling for and producing oil and natural gas. Such operations were meant not only to generate profits for the parent company, but also feedstock for Agrico’s manufacturing activity. In 1976 Williams joined with Newmont Mining Corporation, Bechtel Group, Boeing Company, Fluor Corporation, and Equitable Life Assurance Society to buy Peabody Coal from Kennecott Corporation, coming away with a 27.5% share. Also that year, the company sold its Williams International Group subsidiary, which had been formed in 1972 to take charge of its original pipeline-construction operations. It was sold, to an employee group, thus cutting Williams’s tie to its old core business.

Signs of trouble began appearing at about this time as fertilizer prices dropped. Williams’s earnings plunged as a result. Nonetheless, the company acquired Rainbow Resources in 1977, a Wyoming oil and gas-exploration concern, for $40 million, and spent another $40 million expanding its pipeline network. When John Williams retired as chairman and CEO in 1978 at the age of 59, he left the relatively small family business that he had founded in 1949 as a conglomerate with sales of over $1 billion and assets of almost $2 billion.

He was succeeded by Joseph Williams, David Williams Jr.’s 45-year-old brother. Williams became a more conservative company, concentrating on the steady profits generated by its pipeline operations and shedding less dependable businesses. In 1979 it sold its Williams Energy subsidiary, which consisted of what used to be The Suburban Companies, to Penn Central Corporation for $57 million.

At about the same time, Agrico’s financial performance was mercurial. The subsidiary posted a record profit of $175.5 million in 1980 only to plummet to a loss of $30.3 million in 1982, following a sharp drop in the demand for fertilizer. As a result, Williams’s profits dropped from $57 million in 1981 to $34 million in 1982. In 1983 Agrico sold its entire retail operation to a management group for $51.7 million and a 40% stake in the new company, Crop Production Services, Inc. The relatively stable pipeline business looked more attractive, and that same year Williams acquired two natural gas pipelines: Northwest pipeline, which served the West Coast, and Northwest Central, which was located in the Midwest.

By the middle of the decade, Joe Williams had concluded that his company needed a major restructuring to cut its dependence on commodity-based operations whose revenues were as unstable as the prices of those commodities. In 1984 Williams divested Edgcomb Metals, selling it to a management group. The next year, it embarked on a new venture. It established a subsidiary, Williams Telecommunications, to run a fiber-optic cable network that would be installed inside abandoned steel pipelines.

The restructuring continued in 1986 when Williams sold all of Williams Exploration’s assets to the U.S. subsidiaries of two Belgian oil companies, Petrofina and Cometra Oil. The reorganization ended in 1987, when the company sold its stake in Peabody Coal to consortium partner Newmont Mining for $320 million and divested Agrico by selling it to Freeport-McMoRan Resource Partners for $350 million. Also in 1987, Joe Williams added “The” to the company’s name.

At the same time, The Williams Companies, Inc. showed that it was serious about the telecommunications business. In 1987 Williams acquired LDX NET, Inc., which owned a 1,295-mile-long fiber-optic network. In 1989 Williams Telecommunications became the fourth-largest fiber-optic telecommunications company in the United States when it acquired another fiber-optics concern, LIGHTNET, and added 4,500 miles to its system. This gave Williams a total of more than 11,000 miles over fiber-optic cable, transmitting signals from New England to the Pacific coast.

Wall Street approved of the new, leaner version of The Williams Companies and its name surfaced more than once in the late 1980s as an attractive takeover candidate. However, no takeover bid ever surfaced.

Principal Subsidiaries

Northwest Pipeline Corp.; Williams Production Co.; Williams Field Services Co.; Williams Western Pipeline Co.; Williams Natural Gas Co.; Williams Energy Co.; Williams Pipe Line Co.; Williams Telecommunications Group, Inc.