NEW YORK-For market watchers waiting to exhale, the AT&T Corp. Wireless Group’s $10.6 billion initial public offering proved not just big, but also graceful, as it took center court April 27.
Nearly double the size of the last record-breaker, the United Parcel Service Inc. IPO in November, the 360-million share wireless tracking stock opened on the New York Stock Exchange at a price of $29.50 each. Based on that valuation, the Wireless Group has a market capitalization of about $72.5 billion, or a bit less than half that of its parent.
The number of shares in the tracking stock sale equaled those anticipated in AT&T’s Securities and Exchange registration, and price was about midway in the expected range of $26 to $32. Goldman, Sachs & Co., Merrill Lynch & Co. and Salomon Smith Barney were global coordinators of the IPO, of which 306 million shares were offered in the United States and Canada and the remainder in other countries, AT&T said.
Although analysts from companies like Donaldson, Lufkin & Jenrette Securities Corp. and Standard & Poor’s Corp. praised the merits of the deal in advance for unlocking value, others fretted over its prospects. Its magnitude and its structure, which falls short of outright divestiture through spinoff, caused concern.
A recent study by two University of Iowa professors, Anand Vijh and Matthew Billett, revealed that 19 of the 28 tracking stocks issued before AT&T Wireless Group have underperformed based on three criteria: size-weighted returns for the market; returns in the same industry sector; and returns for stocks of companies of similar size.
Nevertheless, two notable exceptions stand out. Liberty Media Group and Sprint PCS tracking stocks have outperformed those of their parent companies in recent months.
Outside the scope and nature of the deal itself, overall stock market conditions this spring have been volatile, with the Nasdaq experiencing its worst drop ever in mid-April. Last Thursday, when AT&T Wireless Group went public, the Dow Jones 30 index closed at 10888.1, down 57.4 points. However, the Nasdaq closed up 143.93 points at 3744.05 and the S&P 500 ended the trading day at 1464.92, up 3.93 points.
Another concern of market observers is that nearly 60 percent of the approximately 170 IPOs sold this year are trading at or below their initial offering prices, according to Thomson Financial Securities Data. By contrast, just 20 percent of the 110 IPOs sold during the first four months of 1999 fell into the same category.
The AT&T Wireless Group tracking stock, which trades under the symbol `AWE’, closed its first day at $31.19. It was, by far, the most actively traded stock on the Big Board, with 124.6 million shares changing hands.
The stock of its parent took second place, with 13.1 million shares traded. AT&T’s stock closed April 27 at $48 per share, down 5.9 percent.
In a related development, the Philadelphia Stock Exchange announced April 27 it would begin trading options on AT&T Wireless Group tracking stock beginning May 11.
Options are an agreement to buy or sell stock within a specific period for a sum agreed upon in advance. Because option buyers must put up only a small amount of money to control a large amount of stock, options trading provides a great deal of leverage and can be very profitable. However, it also is very risky.
AT&T plans to spend the IPO proceeds to expand its mobile and fixed wireless operations through network expansion and acquisition and for general corporate purposes at the parent corporation.
In early February, when AT&T made public its decision to sell stock that tracks its Redmond, Wash.-based Wireless Group, the parent company said it could divest a stake of up to 19 percent. Last Thursday’s initial offering comprised about 15.6 percent.
In announcing the pricing of the IPO April 26, AT&T reiterated its intention of “disposing of its remaining interest in the Wireless Group, a portion of which will be distributed in the second half of this year.” The parent plans to distribute to its common stock shareholders a dividend comprising an as yet undetermined portion of its interest in the Wireless Group.
The parent company said it also is “considering an exchange offer, a further sale of AT&T Wireless Group tracking stock or a combination of these alternatives in disposition of its economic interest.”
This process could occur in stages in accordance with the board of directors’ “assessment of market conditions and other circumstances … with a goal of maximizing value for AT&T share owners,” AT&T said.
