AT&T; Spinoff Lucent Makes Historic IPO
Lucent Technologies Inc., AT&T;’s new telecommunications equipment spinoff, made its first big splash as an independent company Wednesday by completing the largest initial public offering ever recorded in the U.S.
The $3-billion stock offering, part of a complex plan to break AT&T; into three companies, represents about 20% of Lucent, giving the company a value of about $15 billion.
That’s sharply lower than the $21-billion price analysts were tossing around just a few weeks ago. But with $22 billion in sales, more than half that in telecommunications equipment, Lucent will start life as one of the world’s leading phone equipment suppliers, joining a club that includes Motorola, Alcatel of France and Siemens of Germany.
AT&T; moved to spin off the Murray Hill, N.J.-based unit in large part because independence was becoming increasingly important in a deregulated and competitive telecommunications market. The Baby Bell telephone companies, for example, now among Lucent’s largest customers, had become reluctant to buy their phone equipment from AT&T; as the telephone giant positioned itself as a competitor in the local phone business.
Although Lucent already operates in large part as an independent company with its own chief executive and employees, it won’t be completely broken off from its parent until sometime later this year, when AT&T; shareholders receive the 80% of Lucent not sold to the public. AT&T; shareholders will get one Lucent share for roughly every three shares of AT&T; they hold.
AT&T; will divide its remaining assets into two other companies: NCR Corp., which makes large computers, and a new AT&T;, which will provide long-distance, wireless and credit-card services.
In Wednesday’s offering, AT&T; sold 112 million shares of Lucent for $27 each. The shares were sold to Wall Street firms Wednesday and will begin to trade on the New York Stock Exchange today. Analysts have been generally upbeat about the stock offering, and strong investor demand is expected to drive the shares somewhat higher.
But Lucent will not show the kinds of dramatic price increases that have become commonplace in recent IPOs, especially in the red-hot Internet sector. Besides, it’s coming on the heels of the busiest month for IPOs since December 1983, and there has been a declining public appetite for IPOs. The sheer size of the offering, and the fact that Lucent is an established company rather than a fast-growing start-up, makes any large movement in stock price unlikely.
Lucent also faces numerous business challenges in its new incarnation that render its future far from secure. AT&T; will load the new company down with $3.8 billion in debt, for example, a burden that will depress earnings.
Including restructuring costs tied to planned major layoffs, Lucent reported a loss of $867 million for 1995 on revenue of $21.4 billion, down from a profit of $482 million and revenue of $19.7 billion for the year before.
As a result of its new independence, a major chunk of the company’s business--now guaranteed from AT&T--will; be up for bid. Its erstwhile parent, the AT&T; phone service company, accounts for about $2 billion in annual sales. AT&T; has promised Lucent $1 billion in business annually for the next three years; after that, it’s on its own.
Lucent also faces a maturing U.S. market for telecommunications switches. It is making an aggressive push into faster-growing markets in Asia and elsewhere, but it faces tough competition from companies like Alcatel that have long had a powerful international presence.
And Lucent must face these challenges with a name that has neither the brand recognition nor the respect of AT&T.;
Lucent has already begun the transition, however. Last year, 23% of its sales were from foreign customers, up from 19% for 1993. And the company is one of just a few able to build both wireless and wire-line communications systems that can serve an entire nation.
Lucent’s control over AT&T;’s famed Bell Laboratories--it will get 75% of Bell Labs--should also give the equipment company prestige and plenty of research muscle.
Standard & Poor’s Corp. is relatively optimistic about Lucent’s prospects, predicting the earnings per share will rise next year to $2.50, up more than 50% from 1996 earnings. Analysts warn earnings could be lower if AT&T; fails to follow through with its planned layoffs.
