AT&T; Wireless IPO Sets Record

All eyes on Wall Street today will be on the mammoth initial public offering for AT&T; Corp.’s wireless unit, which crushed the previous record by raising $10.6 billion late Wednesday.

The IPO, which begins trading publicly today, is easily the largest in U.S. history, involving nearly every major investment bank and thousands of AT&T; employees and shareholders.

For AT&T; executives, it’s also a rare cause for celebration amid shaky stock performance, cost-cutting and regulatory friction over its planned merger with cable company MediaOne.

But the key question is: Will the offering benefit AT&T;’s shareholders and the company overall in the long run?

At the heart of the uncertainty is AT&T;’s decision to set up its fast-growing wireless business--AT&T; Wireless Group--as a so-called tracking stock. That means that although AT&T; sold 360 million shares in the unit to the public--about a 16% stake--the New York-based company will maintain full control of the wireless business, and their fates will remain inextricably linked.

Tracking stocks have recently gained favor as a way for companies to highlight the performance and value of attractive segments of their overall portfolio. The strategy, tapped lately for wireless, Internet and other technology-centric units, allows the parent firm to raise large amounts of new capital without giving up control of the underlying business.

The majority of the tracking stocks already issued have been laggards, trailing the performance of the main company’s stock, but some have been huge successes. Although the pool is small, with fewer than 20 tracking stocks trading, some analysts said they question their long-term benefits to investors.

For now, however, investors appear to be shrugging off the risks, giving AT&T;’s tracking stock solid backing despite a jittery IPO market that in the last month has forced an estimated 50 companies to postpone or cancel IPOs, and several others to reduce their offering prices to entice buyers.

The 171 initial public offerings sold this year are down 39.6%, on average, since their first-trading-day closing price, according to CommScan, a New York data firm.

Still, shares in AT&T;’s wireless unit sold at $29.50 each, the midpoint of the expected range of $26 to $32 set by underwriters Goldman Sachs & Co., Merrill Lynch & Co., Salomon Smith Barney and others. Analysts took that pricing as a good sign, given the turbulent stock market, and some predicted the stock will rise 10% to 20%, perhaps more, in today’s trading.

The tracking stock will trade on the New York Stock Exchange under the symbol AWE, while AT&T; will still trade under the symbol T.

“This deal allows people to invest in AT&T; and focus on the growth without investing in the ‘old economy’ part of the company,” said Ben Holmes, founder of IPOPros.com, a Boulder, Colo.-based data tracker. “That’s the magic here.”

Although major clients always get first dibs on IPOs, the large size of this offering and the long list of underwriters probably gave average investors a fighting chance to participate, according to Holmes. “If there’s any IPO deal that Mrs. Jones and Mr. Smith will be able to get ahold of, it’s this one.”

The sale gave the wireless unit a market value of $68.15 billion, with more than $7 billion of the $10.62 billion in proceeds earmarked for the wireless unit, and more than $3 billion going to AT&T;’s corporate coffers. The underwriters--more than two dozen of them--earned a total of $318 million, based on a 3% fee.

The offering was nearly double the next-largest U.S. IPO, United Parcel Service Inc.’s $5.5-billion deal last year.

Despite the vast amount of investor money funneled into AT&T;’s offering, analysts said they don’t expect the deal to hamper buyers’ enthusiasm for smaller IPOs expected to price this week.

“People who want this wireless IPO are basic value investors--people who own AT&T; and Cisco,” Holmes said. “They’re not the sort of investors looking for the first-day pop on the latest Internet IPO.”

Although many analysts expect the wireless unit to do well on its first day of trading, some say the recent slump in other wireless stock prices and overall market volatility could take its toll.

“It’s very difficult to forecast what’s going to happen [in today’s trading], but there’s a lot of pressure to make sure that this deal is a success,” said Robert Wilkes, a telecommunications analyst with Brown Bros. Harriman & Co., one of the few firms not directly involved in the IPO.

Indeed, the offering is seen as crucial for AT&T; Chairman Michael Armstrong, who has had trouble keeping the corporation’s widely held stock from sliding.

AT&T; shares, hurt by waning long-distance revenue and uncertainty over the company’s massive investment in the cable business, were trading below $50 last fall when Armstrong began hinting of a possible wireless IPO. Since then, investor enthusiasm for the tracker has periodically pushed the stock above $60, but that hasn’t held.

The company’s stock closed Wednesday at $51, down 88 cents on the NYSE. AT&T;’s stock could use a boost, as the company’s $62-billion merger agreement with MediaOne requires AT&T; to pay more cash if its stock trades below $51.30 in the days before the deal closes.

Armstrong is clearly hoping the wireless tracker will help lift the corporate stock, just as the successful Sprint PCS tracking stock has played a role in supporting a higher price for parent company Sprint Corp.

Sprint PCS, created by Sprint in November 1998 and sold in a public offering in February 1999, is up 258% since the offering, according to Thomson Financial/Securities Data.

Other trackers have not done nearly as well. For example, DLJdirect, a tracking stock issued in May 1999 by investment bank Donaldson Lufkin Jenrette for its online investing unit, is down nearly 50% from its offer price.

Many analysts say the prospects are good for AT&T;’s wireless unit, which has been growing at a fierce pace and providing badly needed revenue growth for the overall corporation.

And although the wireless unit is also spending vast amounts of capital to expand its network and ease capacity constraints, industry watchers believe AT&T; Wireless Group’s position as one of the nation’s largest carriers will eventually yield greater profit for AT&T; as well.

The offering’s proceeds will go toward strengthening AT&T;’s wireless unit, fueling additional network upgrades as well as potential acquisitions and expansion overseas, according to Mark Lowenstein, executive vice president of wireless research at Yankee Group in Boston.

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Big IPOs: How They’ve Done

Wednesday’s $10.6-billion initial public offering for AT&T;’s wireless unit eclipsed any U.S. IPO in size. Nine of the 10 biggest previous IPOs generated first-day gains, though none doubled or tripled in value, and their longer-term performances have been uneven.

Date: 11/99

Company: United Parcel Service

Ticker Symbol: UPS

Amt. raised (in billions): $5.5

1st-day change: +36.0%

Wed. close: -2.7%

Cumulative change: $66.19

Date: 10/98

Company: Conoco

Ticker Symbol: COC/

Amt. raised (in billions): 4.4

1st-day change: +8.1

Wed. close: -6.8

Cumulative change: 23.19

Date: 5/99

Company: Goldman Sachs

Ticker Symbol: GS

Amt. raised (in billions): 3.7

1st-day change: +32.8

Wed. close: +34.3

Cumulative change: 94.50

Date: 10/99

Company: Charter Communications

Ticker Symbol: CHTR

Amt. raised (in billions): 3.2

1st-day change: +19.7

Wed. close: -32.3

Cumulative change: 15.19

Date: 4/96

Company: Lucent Technologies

Ticker Symbol: LU

Amt. raised (in billions): 3.0

1st-day change: +13.4

Wed. close: +738.8

Cumulative change: 64.25

Date: 4/00

Company: MetLife

Ticker Symbol: MET

Amt. raised (in billions): 2.9

1st-day change: +5.3

Wed. close: +7.1

Cumulative change: 16.06

Date: 12/98

Company: Infinity Broadcasting

Ticker Symbol: INF

Amt. raised (in billions): 2.9

1st-day change: +12.5

Wed. close: +40.4

Cumulative change: 32.38

Date: 11/98

Company: Fox Entertainment

Ticker Symbol: FOX

Amt. raised (in billions): 2.8

1st-day change: +8.9

Wed. close: -0.7

Cumulative change: 24.31

Date: 3/99

Company: Pepsi Bottling

Ticker Symbol: PBG

Amt. raised (in billions): 2.3

1st-day change: -5.7

Wed. close: +0.9

Cumulative change: 21.88

Date: 11/99

Company: Agilent TechnologiesTicker Symbol: A

Amt. raised (in billions): 2.2

1st-day change: +48.3

Wed. close: +106.5

Cumulative change: 91.88

Sources: CommScan, Bloomberg News