Wireless stocks posted strong gains in early Wednesday trading following renewed rumors of a possible merger between Cingular Wireless L.L.C. and AT&T Wireless Services Inc. and an upgrade of the wireless sector from neutral to positive by Lehman Brothers.
The latest merger rumor between Cingular and AT&T Wireless was reported late Tuesday, citing sources familiar with the situation that noted the proposed deal-in which Cingular would acquire AT&T Wireless-has the backing of Cingular’s parent companies SBC Communications Inc. and BellSouth Corp. Cingular reportedly postponed a proposed initial public offering to fund the acquisition and instead would use cash on its balance sheet as well as additional funds from SBC and BellSouth. AT&T Wireless has a market capitalization of $23 billion.
If a deal is announced, which one source said could come before the carrier’s fourth-quarter earnings later this month, the combined operation would serve nearly 45 million subscribers and leapfrog Verizon Wireless’ 35 million subscribers as the largest wireless carrier in the country.
The rumor sent AT&T Wireless stock up more than 8 percent in early Wednesday trading to a new 52-week high of $9.65per share with trading volume at mid-day more than double the average trading volume. BellSouth’s stock was also trading up slightly at $29 per share, while SBC’s stock was down less than half a percentage point at $26.35 per share.
Further boosting wireless stock prices was a report from Lehman Brothers citing improving fundamentals, the possibility of higher earnings forecasts and increasing likelihood of industry consolidation for its wireless sector upgrade. The brokerage firm singled out price target increases for Nextel Communications Inc. from $32 per share to $35 per share; AT&T Wireless from $8 per share to $9 per share; Alltel Corp. from $53 per share to $55 per share; Sprint PCS from $4 per share to $5 per share; and U.S. Cellular Corp. from $35 per share to $40 per share.
Lehman Brothers also predicted the industry would add approximately 15 million new subscribers this year, which would be a 10-percent increase.
