AT&T; to Spin Off Wireless Group With IPO to Boost Ailing Stock
Aiming to boost its stock value and regain favor with wary investors, AT&T; Corp. said Monday that it will separate its booming wireless business and sell a portion of it next year in an initial public offering that could raise a record $10 billion.
The announcement, which had been expected for weeks, comes as the nation’s largest long-distance carrier struggles to staunch its sinking stock price and lingering doubts about its strategy to use cable lines to offer residential phone service.
AT&T; said its new issue will be a “tracking stock,” that is, it follows the performance of its wireless unit but does not have an ownership interest. Still, analysts applauded AT&T;’s decision, noting that it will allow the company to tap investors’ new-found enthusiasm for the fast-growing wireless business without harming its existing shareholder base.
“They are very well-positioned, and I think the [wireless] stock is going to skyrocket,” said Rebecca Diercks, director of wireless research at Cahners In-Stat Group. “They should have done this a long time ago.”
AT&T; Chairman Michael Armstrong said the company will create a new entity called the AT&T; Wireless Group.
The new company will include AT&T;’s mobile voice and data business, the firm’s nascent “fixed-wireless” business, and its international wireless operations.
In meetings with analysts Monday, AT&T; executives said the wireless operations will generate revenue of more than $7.6 billion this year.
AT&T; plans to sell shares in the new company--some speculate up to a 20% stake--through a public offering next spring. The remaining shares will be distributed to AT&T; shareholders after the close of its merger with cable giant MediaOne, the company said. AT&T; shareholders must approve the plan.
Some analysts predict that the new AT&T; offering could raise between $8 billion and $10 billion--which would be a record for U.S. initial public offerings.
Daniel Hesse, current president of AT&T; Wireless Services, will also become executive vice president of the new, larger wireless group.
Hesse said the stock proceeds from the new AT&T; Wireless Group would be used to expand AT&T;’s wireless reach in the U.S. as well as to invest in smaller companies of interest to AT&T.; In addition, Hesse said the tracking stock would give the wireless company the flexibility to recruit and retain top talent using stock options, and to make acquisitions, including overseas.
The current IPO record was set last month by package delivery giant United Parcel Service Inc., which raised more than $5 billion in its IPO on Nov. 9.
AT&T;’s plan mirrors that of phone rival Sprint, which in November 1998 cashed in on the growth of its wireless unit, Sprint PCS, by forming a tracking stock for the operations. The move gave Sprint a fresh cash infusion and created a stock that has sometimes outperformed its parent firm’s shares.
AT&T; shares closed unchanged Monday at $57 on the New York Stock Exchange.
Analysts believe that prospective investors will be most attracted by the fast growth of AT&T;’s traditional mobile wireless phone business, which has solid nationwide coverage and remains the country’s largest wireless carrier with more than 12 million subscribers.
AT&T; has provided only sketchy technical details but has said that its fixed-wireless project will provide residential customers with local phone service and high-speed Internet service by using wireless connections and special receivers.
As part of that strategy, AT&T; will begin offering home phone service over a wireless network in three markets next year. AT&T; named only one of the markets--Fort Worth--but there are strong indications that one of the other markets will include parts of Southern California.
On Monday, Armstrong unveiled a string of new moves designed to bolster his credibility with investors, who had begun to fret over high-profile executive defections and signs that AT&T;’s bold move into the cable business might cost more than previously thought.
In addition to the new tracking stock, Armstrong shuffled his executive lineup. He named AT&T; President John Zeglis as head of the new wireless group, above Hesse.
Industry watchers, however, immediately warned that the shuffle could force the departure of Hesse, an executive who analysts credit with making AT&T;’s wireless unit the success it is today.
Hesse, however, downplayed that speculation Monday--but not entirely.
“I can’t predict the future, but I’m certainly going to see how this works out for me,” he said. “For now, my plans are to give this a shot.”
He said the wireless unit has long wanted to establish a tracking stock. “It’s a great asset for us on many fronts,” Hesse said.
* CROSSING OVER: Ex-AT&T; exec Leo J. Hindery Jr. will lead Global Crossing’s Net operation. C2
