AT&T Wireless 1st Day Gains May Be Limited as Investors Balk
New York, April 27 (Bloomberg) -- AT&T Wireless Group's first day gains after the biggest-ever U.S. initial share sale may be limited by investor concerns over competition and the prospect of millions of new shares entering the market.
A government report showing labor costs for U.S. businesses rose at their fastest pace in 10 years could also cap a possible first-day jump. The report, prompting concern interest rates are headed higher, triggered a broad decline in shares.
The New York-based unit of AT&T Corp. sold $10.6 billion in ``tracking'' stock -- 360 million shares at $29.50 each, the midpoint of the offering1 range. Goldman, Sachs & Co., Merrill Lynch & Co., and Salomon Smith Barney Inc. arranged the sale.
The sale raised $900 million less than underwriters had initially hoped as institutional investors such as Dresdner RCM Global Investors LLC, John Hancock Financial Services Inc., and Marsico Capital Management LLC declined to purchase. Some of the 17 firms involved in selling the stock were offering shares to individual investors hours before it was to close yesterday.
``The business has been undermanaged,'' said Michael Mahoney, a fund manager at Dresdner. Also, AT&T has ``the lowest margins of any of the major carriers in the U.S.''
He said the company's technology, known as TDMA, or time division multiple access, was ``inferior'' to competitors. They mainly use CDMA, or code division multiple access, and GSM, or global system for mobile communications.
Market
Still, AT&T completed the sale amid a slump in both telecommunications shares and the IPO market.
The sale of the 16-percent stake gave ATT Wireless Group a market value of $68.15 billion. Completing the IPO as the shares of rivals such as Nextel Communications Inc. sagged 30 percent the past seven weeks underscored demand for a business whose cash flow doubled to $430 million the first quarter.
``None of the problems that AT&T Wireless has, in our view, are terrible company killer problems, they're only things that make us more sensitive to valuation,'' he said. ``And we are so bullish about wireless in general that we would certainly be looking very seriously at AT&T Wireless at lower prices.''
The sale of tracking shares, which provide an economic but not ownership interest, surpassed United Parcel Service Inc.'s U.S.-record $5.5 billion IPO last year. It ranks as the sixth biggest on record, behind NTT Mobile Communications Network Inc., Enel SpA, British Petroleum Co., Deutsche Telekom AG, and Telecom Italia SpA, according to Thomson Financial Securities Data.
The sheer size of the sale is a concern to investors such as Ed Larsen, chief equity officer at Houston-based AIM Capital Management, which has more than $100 billion under management.
After the sale, there will be the equivalent of 2.31 billion shares outstanding. AT&T said in its IPO filing that it intends to distribute the remaining 1.95 billion shares.
The wireless unit will receive about $7 billion of the proceeds from the sale, using the money to expand its network, for possible acquisitions, and for capital expenditures. AT&T will receive more than $3 billion.
AT&T Wireless Group plans to trade under the symbol ``AWE'' on the New York Stock Exchange.
Apr/27/2000 8:44 |
