AT&T; ‘Trivestiture’ Means Opportunities for Its Stockholders

For decades, AT&T; Corp. has been America’s favorite buy-and-hold stock.

It is the quintessential widow-and-orphan issue, the stock that seemingly always makes money long-term--or at least pays a healthy regular dividend. It is a popular gift for birthdays, baptisms and bar mitzvahs, and it is the favorite holding of the nation’s investment clubs.

That popularity has translated to more than 3.3 million shareholders--more than for any other company--holding AT&T;’s 1.6 billion shares.

So when AT&T; completes the first part of its “trivestiture” this month--just 12 years after it shed the “Baby Bells”--it will affect nearly everyone. Even if you don’t own the stock, one of your neighbors--or one of your mutual funds--probably does.

Since the trivestiture was announced last September, AT&T; stockholders have wondered how to react. Now Decision Day is approaching.

AT&T; spins off its remaining 82% share of Lucent Technologies, the new name for its telecommunications equipment business. (Lucent was created in an initial public offering of 18% of its shares in April.) By the end of the year, NCR--the company’s computer maker--will be broken off as well.

AT&T; itself will become a smaller company focused on the phone communications business with a side order of credit card operations.

The spinoff situation presents investors with entirely new options. Unlike the breakup of the phone system in the mid-1980s--in which all of the new companies plus AT&T; were essentially telecommunications firms--the new spinoffs are in disparate businesses.

Consider AT&T; stock as if it were a mutual fund. In any given fund, there might be companies you don’t like but which you tolerate because of the overall return of the fund.

Now investors will be able to rejigger their portfolios, keeping the assets they have an interest in and unloading the parts they find unattractive or which do not meet their needs.

“For investors, this is a real opportunity to make some choices, rather than simply holding one company,” says Thomas P. McIntyre, president of Dessauer Asset Management Inc. in Orleans, Mass. “You may have liked AT&T; stock, but now you can decide which parts of it you liked best and want to hold on to. It’s the kind of decision--and control over your investments--that investors don’t get to make that often.”

When most companies change dramatically, investors generally reevaluate the stock.

With the AT&T; spinoffs, however, most investors were buying “the phone company.” Even if they were aware of its ancillary parts, the typical AT&T; investor did not buy the stock for the businesses being spun off as Lucent and NCR.

It’s not that anyone is stuck with the new stocks, but rather that people must decide whether the new issues are suitable for their portfolios.

AT&T; shareholders will receive about 0.326 share of Lucent stock for each AT&T; share they own now. The exact exchange rate will be set on Sept. 17, the “record date” for this portion of the spinoff. The Lucent shares, plus cash to make up for any fractional holdings, will be distributed Sept. 30.

In effect, AT&T; investors will see an improved dividend as a result of the spinoff, since the AT&T; shares will continue paying the current 33 cents per quarter, and the Lucent shares will kick over an additional 7.5 cents.

The final details for the NCR spinoff haven’t been completed, but it should be done by the end of the year.

It is entirely possible to be attracted to AT&T;’s telephone business, yet not feel that the technology/computing spinoffs are a good fit in your portfolio. Conversely, some people might feel it is Lucent--with many cutting-edge products--that is the shining star of the spinoff troika.

Advisors suggest that selling before the spinoff is probably a poor choice for most investors. It creates capital gains, generates a tax bill and unloads the core AT&T; holding in the process; for some people, that would unload the part of the company they want to keep.

A few days before the record date, shareholders will be able to sell the rights to Lucent shares without selling the AT&T; stock. Otherwise, the choice is to hang on through the distribution period and decide then whether to sell any of the AT&T; components.

(Shareholders should have already received details on how the spinoff will work. For additional questions, call AT&T;’s 24-hour spinoff hotline at [800] 756-8500.)

The tax consequences of selling AT&T-related; shares will be a tricky business. Investors who stick around to receive the Lucent and NCR shares will get information that helps calculate the adjusted tax basis--what you paid to buy the shares, adjusted for stock splits and other corporate activity--on their new holdings.

But for AT&T; shareholders looking to sell their shares in light of the trivestiture, or in general, calculating the cost basis of the shares can be a nightmare. Every new purchase, dividend reinvestment, stock split and divestiture alters the effective price on the shares, and long-term holders have had to keep up with more twists and turns than marathon roller-coaster riders.

AT&T; has prepared a booklet to help shareholders calculate the amount they paid for shares. In addition, First Chicago Trust Co., the transfer agent for the company, can easily offer assistance in determining the cost basis for shares for investors who hold them in their own name--rather than on account at a brokerage house--because the individual will be on file.

Still, investors with decent records should be able to work with their broker and the transfer agent to reconstruct what they paid for the shares and have accurate data when the time comes to sell.

As for whether that time is now, given the spinoff, experts suggest deciding on how you feel about owning companies in each of the three industries involved, how you like the AT&T; successor within the industry versus its competition, and whether the risk involved in the stock fits in with your investment profile.

“For some people, this will be business as usual, but with different names,” says William G. Markos, president of Ipswich Investment Management. “For others, this is a chance to fine-tune their holdings. It’s not like there are a lot of negatives either way; it’s just what is going to work best for each individual.”

Charles A. Jaffe is personal finance columnist at the Boston Globe. He can be reached by e-mail at jaffe@globe.com or at the Boston Globe, Box 2378, Boston, MA 02107-2378.

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Splitsville

AT&T; Corp. started its three-way divestiture in April, creating Lucent Technologies Inc., which has performed better than AT&T; on Wall Street since then. A third company, NCR Corp., will be spun off later this year. Weekly closes for AT&T; and lucent shares since April:

AT&T; -- Friday August 30: $52.50

Lucent -- Friday August 30: $36.875

The Three New Companies

AT&T;

Will end up as primarily a long-distance telephone company, now beginning to compete in local phone service and other areas.

LUCENT

A telecommunications equipment maker focusing on microelectronics, fiber optics and networking. The research arm is the venerable Bell Labs.

NCR

The onetime cash register company is now a computer company specializing in minicomputers, a mid--range market between small PCs and large mainframe.

Source: Bloomberg Business News.