That ATT wireless deal is like python trying to swallow a cow, maybe the market can take it but it's gonna take a long time to digest. Wonder if these T wireless employees will get a pop on the IPO or grab a greased anchor?:
"As AT&T Wireless Unit Sets IPO, Employees Scramble to Cash In
By REBECCA BLUMENSTEIN
Staff Reporter of THE WALL STREET JOURNAL
BAYONNE, N.J. -- Paul Winters sits staring at the stock quotes marching
across his 60-inch television screen, exhausted after working the midnight
to 8 a.m. shift at AT&T Corp.'s data network operations. In his right hand,
held tenderly between thumb and forefinger, is the biggest check he has
ever seen in his life: $42,600 from a loan on his retirement account. He's
about to risk all of that -- and more.
Mr. Winters, 33 years old, has also secured a $11,800 loan from his credit
union. He intends to throw the whole $54,400 nut -- a sum greater than his
annual salary -- into Thursday's expected debut of AT&T's wireless
company in the largest initial public offering in U.S. history. He hopes to
buy at least 2,000 shares. "I'm putting in everything I have," he says. "I
don't want to miss out."
Next door lives his twin brother, Michael
Winters, also an AT&T employee. Michael,
says Paul, "thinks I'm crazy." That's for sure:
"You never borrow money to buy stock,"
Michael says. "I've tried to tell him that." Michael is not quite the plunger
his brother is. Michael has siphoned a family "rainy day" savings account so
he can buy into the IPO.
Gold Fever
Across the country, thousands of AT&T employees are loading up on debt
and cashing in their chips to raise money to buy into the company's historic
IPO. AT&T will sell 360 million shares in its red-hot wireless unit, at initial
prices expected to raise about $13.2 billion. The new issue will be a
so-called tracking stock, which will in theory reflect the performance of
AT&T's wireless operations.
In a little-noticed wrinkle, AT&T has eschewed the traditional "Friends
and Family" program that reserves those IPO shares that go to employees
for big shots only. Instead, AT&T has set aside as much as 10% of the
shares for all company employees; the top dog has the same shot at buying
in as the bottom file clerk. Now, AT&T employees who for years have
watched others strike it rich in the telecom bonanza sense that it could be
their turn.
Or not. Almost 150,000 employees were eligible to purchase shares
valued at roughly $1 billion, and at least 60,000 of them have indicated that
they're willing to buy in. But raising money is no guarantee of getting all of
the cherished shares that an employee wants, because the IPO is widely
expected to be oversubscribed. If so, shares will be doled out
proportionately; employees will receive some IPO stock, but not as much
as they sought. AT&T staffers could end up with lots of extra cash, tax hits
from moves made to raise the money and not nearly as many shares as
they wanted.
Reality Checks
There is no lockup provision, so if the shares employees do receive end up
zooming, they could take profits fast. But there are many reasons -- from
heavy competition to investors' generally lukewarm taste for tracking
stocks to the current stock market loop-the-loops -- why the new shares
are far from a sure thing.
All that may not have registered with AT&T employees gripped by IPO
fever. "These are not people who are investing in the market on a regular
basis," says Joan Bloom, senior vice president of Fidelity Online
Brokerage. Fidelity, along with Lehman Brothers, is handling the employee
portion of the IPO. Fidelity representatives say they have been receiving
calls from more than 5,800 AT&T employees a day recently.
No American company has ever tried to share the potential wealth of an
IPO on this scale. Indeed, early this week, AT&T decided that all
employees, regardless of whether they buy into the IPO, will receive
options for at least 100 shares in the satellite unit. AT&T is trying to
reward -- and retain -- employees who've endured some rough times at
AT&T lately, as the company undergoes a wrenching reconfiguration
under Chief Executive C. Michael Armstrong.
More fundamentally, the offering is central to Mr. Armstrong's plan to
unlock the value of AT&T's assets, boost its share price and shed its image
as a fusty long-distance phone carrier. The IPO will help fund the CEO's
monumental gamble that he can transform AT&T into a New Economy
warrior. He has already staked more than $110 billion on that bet by
buying cable-TV systems.
But under Securities and Exchange Commission rules, AT&T managers
are forbidden from giving recommendations to employees beyond the IPO
materials sent out by Fidelity. And many employees may be
underestimating the risk of putting up a significant amount of money to get
into such an offering, especially one issued by their own employer. "For
every IPO that goes through the roof, there are five others that six months
later are languishing," says Dave Foster, a financial adviser at Foster &
Motley in Cincinnati.
Biggest U.S. Initial Public Offerings
Through
Company
Date
U.S.
Proceeds
(billions)
Offer
Price
%
Change
on 1st
Trading
Day
%
Change
Tuesday
AT&T Wireless*
April
27,
2000
$13.20
$26-32
--
--
United Parcel
Service
Nov.
9,
1999
4.38
50
+34.8%
+32.3%
Conoco
Oct.
21,
1998
3.96
23
+8.2
+5.7
Goldman Sachs
May
3,
1999
2.93
53
+32.8
+84.1
Charter
Communications
Nov.
8,
1999
2.75
19
+19.7
-21.1
Infineon
Technologies
March
13,
2000
2.72
34
+126.5
+92.8
Lucent
Technologies
April
3,
1996
2.65
27**
+13.4
+844.4
* Figures are approximate
** Split-adjusted price would be $6.75
Source: Thomson Financial Securities Data
These days, Mr. Foster spends a lot of time consoling employees of
Cincinnati's hometown Procter & Gamble about that company's wounded
stock, and warning people about having too much exposure to their own
employer's financial fate. "It just never occurs to people in doing planning
that their stock could fall in half," he says. "If something bad happens, if
they lose their job and AT&T is doing poorly, it's a train wreck."
But try cooling off AT&T's workers. "This is all people are talking about,"
says Ken Kondyra, a technician who now leaves his New Jersey house at
4:30 every morning for the 45-mile commute to his new office. His old one
was shut down because of cost cuts that will reach $2 billion this year. "I
don't think I can do it, unless I can hit my father up for a loan," says Mr.
Kondyra.
On a break from work in the windowless offices of an AT&T switching
center in Manhattan, Vincent Errico, a 30-year company veteran, stares
into his coffee as he talks of the $30,000 in cash he has raised to sink into
the IPO. He did it by selling all the stock of Lucent Technologies Inc., a
former AT&T unit, that he had accumulated over the years. "I used to
gamble a few years ago," says Mr. Errico, 52, in a soft voice. "My
girlfriend says this is gambling, and she's right."
Adding to the risk is the fact that cost-cutting instituted since Mr.
Armstrong arrived in November 1997 is in full-swing these days. The cuts
have resulted in nearly 25,000 jobs being eliminated; more reductions are
coming. A day after the IPO, for example, Mr. Errico expects to learn
how many more jobs will be cut in his office. "People who are looking at
this IPO might not have jobs," says Mr. Errico.
And it isn't cheap to play. For logistical reasons, AT&T officials decided
that employees would have to buy a minimum of 100 shares to get in on
the offer. At the price range of $26 to $32, that amounts to a minimum
investment of $2,600 just to get to the starting gate.
Many are happy to ante up, regardless of how they have to stretch. Geri
Veaudry, an AT&T account representative, has put in for 200 shares that
require about $6,400 in cash. She emptied her Christmas Club account
and borrowed a couple of thousand more. In February, the family invested
$8,000 in an IPO at Choice One Communications Inc., a
telecommunications provider where her husband Ed works as an account
representative.
For the Choice One IPO, "we had to come up with some money real
quick, so I cashed in my 401(k) from my last job," says Mr. Veaudry. The
tax penalty for doing so is a stiff 42%, but Mr. Veaudry says he felt he had
nowhere else to turn. Then, the AT&T offering came along. "I stepped
back and said to my wife, 'I don't know how we are going to do this,' "
Mr. Veaudry recalls.
Mr. Veaudry knows from personal experience that IPOs aren't always a
goldmine. Shares in Choice One skyrocketed to more than $70 each, but
lately have been trading in the $20s. Mr. Veaudry paid $20 each for them,
and hasn't been able to sell because, unlike AT&T's IPO, Choice One's
has a lockup provision. Still, despite their personal cash crunch, and many
late-night discussions at the kitchen table, Geri Veaudry has insisted on
investing in the AT&T offering.
"I want as much wireless as I can get my hands on," says Ms. Veaudry,
who has also consolidated all of her 401(k) into AT&T stock for what she
expects will be a swift rise. "There isn't really much savings right now for us
to fall back on," she adds. "I just hope that nothing goes wrong."
Mary Gorman, a 19-year AT&T veteran who lives in Syracuse, N.Y., has
put in for 500 shares after debating whether she should borrow money to
buy thousands. For weeks now, Ms. Gorman has tried to listen to the
advice of others, most notably her brother, Tom Behan, a telecom
entrepreneur in Cleveland.
Mr. Behan's advice was pretty simple: "I would risk everything." He says
he told his sister, "Sure, you can focus on the what ifs. What if you lose
your money? But what if you doubled or tripled your money?" He says he
didn't want to come on too strong, though. "Mary is a worrier," he says.
"She is not a big risk taker." Besides, "What if it went south?" Mr. Behan
observes. "I would never hear the end of it."
Ms. Gorman and her husband, Mark, thought about going for it --
borrowing the maximum on credit cards, taking a second mortgage and
raiding the college funds of her two sons. The process has been wrenching.
She earns $48,000 a year as a business account representative, and her
husband earns less as a county employee. Without much money to throw
around, Ms. Gorman ultimately decided that she isn't destined to be one of
the rich folks -- at least from this offering. Even for the 500 shares, she will
have to take a loan from her credit union. "The people who are going to
get really rich are the bigwigs, not the little people like me," she says.
AT&T officials designed the program with the opposite intent. Talk of a
massive employee distribution first surfaced at the company's annual board
retreat in October, when officials debated breaking off AT&T's
fast-growing wireless assets and offering a portion of them to the public.
(After Thursday's IPO, AT&T will still own slightly more than 80% of the
wireless unit. Later this year, AT&T plans to allocate the majority of that
stake to AT&T shareholders through issuance of a tracking stock.)
By structuring the current IPO the way it has, AT&T is partly trying to right
a wrong. When Lucent was spun off in 1996 in one of the most successful
IPOs in history, AT&T didn't let any of its employees buy shares in the
new company. As Lucent stock surged, many AT&Ters watched with
envy as former colleagues gained riches once unimaginable in the telephone
world. AT&T didn't want employees to be similarly frozen out this time.
In early February, Claudia Holcomb, the AT&T manager in charge of the
program, described to a roomful of about 30 bankers the company's
intention to open up the IPO broadly. "I said there is no special treatment
for executives. Everyone has the same shot," said Ms. Holcomb, according
to people who attended the meeting. Afterward, a number of bankers,
more accustomed to companies trying to keep IPO shares to as few
employees as possible, called Mr. Armstrong to make sure the manager
hadn't been out of line.
In fact, AT&T has discovered along the way that the rules governing IPOs
are geared to reserving shares to a very exclusive crowd. For example,
AT&T officials had to negotiate with SEC to be allowed to even tell
employees about the program because of laws requiring them to be in a
strict quiet period before an IPO. Every word of communications has been
personally approved by the SEC, according to AT&T officials. Fidelity has
made special provisions with the U.S. Postal Service to get expedited
packets out en masse, so employees could meet deadlines.
Wednesday night presents perhaps the biggest challenge. By law, every
employee interested in buying shares will have to reach AT&T within a
four-hour time period once the price range is set at about 6:00 p.m.
Wednesday. So many workers are expected to be calling and logging
online into Fidelity that it has hired 1,000 additional workers for the night.
At two minutes after 10 p.m., Fidelity plans to start running a complicated
computer program to determine who gets how many shares. At the
opening bell Thursday, the shares start trading.
Paul Winters will be on the edge of his seat, "glued to the TV," he says. He
plans to work his night shift and come home early Thursday morning in
plenty of time to catch the opening bell. His twin brother Michael, who also
works nights, will be right there with him, on the beige couch in front of the
60-inch screen. Sleep will have to wait.
They plan to dart next door to Michael's house from time to time to boot
up Michael's computer so they can check on how many shares each
actually receives. Michael, married with two kids and a touch nervous
about whether AT&T's cost-cutting will ever claim his managerial position,
is shooting for only about 200 shares, in contrast to Paul's target of more
than 10 times that. "I definitely think it's going to be a big payoff ... but it's a
risk," Michael says.
The Winters boys, whose father worked at AT&T for 35 years, say
they've talked about nothing but the IPO for weeks, getting increasingly
worked up about it. Both say they'll be relieved when the stock finally
starts trading. "I'm confident, but I'm getting nervous," confides Paul
Winters. "I can't wait until it's over." |
