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Williamson Case

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A Case Study

The Initial Public Offering of Williams Communications Group, Inc.

William B. Elliott*

Department of Finance
Oklahoma State University
College of Business
224 Business
Stillwater, OK 74078
405.744.8639 (voice)
405.744.5180 (fax) elliowb@okstate.edu Lindsay Lewellen

First Union Securities
Asset Securitization Division
1 First Union Center
301 South College Street
Charolotte, NC 28288-0943
704.383.7991

March 2002

* Corresponding author

We would like to thank Jack McCarthy, Scott Schubert, and Betty Simkins for their valuable comments.

A Case Study

The Initial Public Offering of Williams Communications Group, Inc.

Abstract

The Williams Companies, Inc. has decided to divest a portion of their holdings in Williams Communications Group (WCG), a wholly-owned subsidiary. WCG is a high growth business operating in the telecommunications sector. This case focuses on valuation of a telecommunications company and the process of taking a wholly-owned subsidiary public using an equity carve-out. Students are asked to estimate a value for this offering. This case is most appropriate for undergraduates, however, it could be a used as an introductory case for MBA students.

INTRODUCTION

Mr. Jack McCarthy, Chief Financial Officer (CFO) and Senior Vice President of The Williams Companies, Inc. (WMB), sat in his corner office overlooking downtown Tulsa and pondered the firm’s upcoming IPO of its Williams Communications Group (WCG). Several weeks earlier, in August 1999, the firm had decided to carve-out 14 percent of WCG. Now the task of valuing the IPO was foremost in Mr. McCarthy’s thoughts. Your summer internship assignment, as an assistant to Salomon Smith Barney’s telecommunications analyst, is to provide Mr. McCarthy with the numbers with which to back up his

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