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Updated from 3:41 p.m. EDT

Williams Companies

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intends to split its energy and communications businesses into two companies, a move analysts said could ultimately unlock the stock market value and growth potential of each side.

Tulsa, Okla.-based Williams Companies hopes to complete the move within a year and a half, though it said it has yet to decide exactly how it would separate the two operations. The company's board also must approve any transition plans.

"Obviously, the ability to do that is consistent with the best long-term interest of our shareholders," Keith E. Bailey, the company's chairman, president and chief executive, said in a statement. Any arrangement to create two totally independent entities, Bailey added, would ensure favorable tax treatment for Williams' shareholders.

In October, Williams Companies sold a portion of its subsidiary,

Williams Communications


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in public and private equity offerings, retaining ownership of about 85% of the telecommunications unit.

Yet the two entities -- Williams Companies and its telecommunications group -- are arguably dragging on each other's share prices, one analyst said, and could probably perform better in the market autonomously.

"The board and the management felt that the total value is not reflected in the parent company's stock," said Donato Eassey, an analyst with

Merrill Lynch

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. "This is a way to create value for both."

Shares of Williams Communications have dropped more than 20% since late June when the group announced it would spend an additional $1 billion over the next few years to expand its fiber-optic network. On Monday, Williams Communications closed down 7/8, or 2.98%, at 28 1/2.

The stock of Williams Companies, meanwhile, rose 1, or 2.3%, to 42 7/8 on the

New York Stock Exchange

. The company, which is scheduled to announce its second-quarter earnings on Friday, said last month that it would exceed Wall Street's predictions partly because of higher natural gas prices.

A division between the businesses within the next couple of years could enable each side to operate more efficiently and concentrate on its strengths, though analysts said it favors the communications side of the arrangement, which will be better able to trade on par with some of its peers, including

Level 3 Communications


of Colorado.

"On the energy side it may make less sense," said Carol Coale of

Prudential Securities

, "because of the sex appeal of a company that owns a broadband carrier."

Bailey, the Williams chief executive, said in the statement that he would not elaborate on the transition plans at this time. A spokesman, Jim Gipson, added: "It hasn't exactly been a secret. There has been a great deal of speculation about it. But it's an issue that needs some inquiry."

The energy-related business of Williams Companies is responsible for the transportation and storage of natural gas as well as the exploration and production of oil and gas, while the communications side of the corporation owns and operates about 26,000 miles of telecommunications fiber-optic network.