WILLIAMS COS. bests Shell with $2.5 billion offer for Barrett Resources

<br>NEW YORK (AP) _ Seeking to substantially increase its natural gas output, Williams Cos. said it will buy Barrett Resources for $2.5 billion in cash and stock, topping a bid by the U.S. unit of Royal

Tuesday, May 8th 2001, 12:00 am

By: News On 6

NEW YORK (AP) _ Seeking to substantially increase its natural gas output, Williams Cos. said it will buy Barrett Resources for $2.5 billion in cash and stock, topping a bid by the U.S. unit of Royal Dutch/Shell Group.

In response to the announcement Monday, Shell dropped its $2 billion hostile bid to acquire Denver-based Barrett, which owns property in Wyoming.

Barrett, a natural gas production and exploration company, decided to put itself up for sale last month after rejecting Shell's initial offer for the company. Names of other bidders were not disclosed.

Williams, a Tulsa, Okla.-based energy trader and pipeline operator, produces about 15,000 megawatts of electricity but plans to triple its power generation over the next few years.

The deal nearly triples Williams' natural gas reserves, giving it enough to meet 50 percent of its annual demand, and could prompt other power generators to make similar acquisitions, said Ron Barone, an analyst at UBS Warburg.

``To the extent they can lock up the gas now, it certainly reduces their risk going forward,'' Barone said, because ``the U.S. is going to be short on natural gas reserves for years to come.''

Shell initially offered $55 per share for Barrett, valuing the company at about $1.8 billion, but later sweetened its offer to $60 per share. Analysts, however, predicted Barrett stock was worth between $65 and $75 per share.

Williams will pay $73 per share for 50 percent of Barrett's outstanding stock, then pay 1.767 shares for each remaining Barrett share. Williams will also assume $300 million in Barrett debt.

Williams shares fell $2.39, or 5.7 percent, to close at $39.28, on Monday on the New York Stock Exchange; the shares gained 22 cents in extended trading to finish at $39.50. Barrett shares rose $2.85, or 4.2 percent, to close at $70.15, also on the NYSE; they gained 23 cents in extended trading to end at $70.38.

The offer is subject to approval by shareholders and regulators. Williams officials said they expected the deal will be completed within three months.

Barrett must pay Williams a breakup fee of $90.5 million if it doesn't go through with the deal.

Shell followed the announcement with a statement saying it was withdrawing its offer for Barrett.

``Shell decided to take this action because of its unwillingness to increase its offer beyond a level that makes economic sense to Shell,'' the company said.

Williams was one of a few companies that submitted bids last week for Barrett. The company was forced to disclose its interest when Wall Street analysts mistakenly were patched into a conference call in which board members were discussing a potential bid.

Barrett's presence in the Rocky Mountain region has become increasingly valuable because of declining production in traditional markets of Texas and the Gulf of Mexico.

``One of the real attractions from Barrett is the significant opportunities to drill and to build our gas production through the drill bit,'' said Keith Bailey, Williams' chairman, president and CEO.

In a conference call with analysts, Bailey also said Williams ``will continue to be opportunistic'' and may seek to expand through more acquisitions.

Williams plans to retain most of Barrett's 237 employees and will not close its headquarters in Denver, said Steven Malcolm, Williams' executive vice president. Williams spokeswoman Ellen Averill said she had no information about Barrett chairman and CEO Peter Dea's future within the combined company.

The deal came two weeks after Williams spun off its Williams Communications division by distributing 400 million shares to shareholders in the form of a tax-free dividend.

Williams Communications transmits signals over its fiber optic lines for long-distance carriers, Internet providers, news and broadcast centers, major sports venues and more than 600 television stations. The company got its start when Williams started placing fiber optic cable in pipelines in 1985.

Last week, Williams, a major power supplier for California, agreed to refund $8 million to settle a federal investigation into alleged improper charges for electricity.

Williams posted 2000 revenue of $10.4 billion, and its net income in 2000 more than doubled, to $524.3 million from $221.4 million.

Williams has 1.2 trillion cubic feet of proven natural-gas reserves, mostly in Wyoming, and has one of the largest natural-gas pipeline systems in the country, with 11,300 miles of pipe.

Barrett has 2.1 trillion cubic feet of proven natural-gas reserves in Colorado, Wyoming, Utah, the mid-continent area of Kansas, Oklahoma and in the Gulf of Mexico off Texas and Louisiana. The company posted 2000 revenue of $376 million. Its net income that year was $27.7 million, up 33 percent from 1999 net income of $20.8 million.