It was clearly show in the prospectus how the funds were to be divided up.
"Investors in AWE of $10.6 billion wireless deal
By Gracian Mack
Redherring.com, April 28, 2000
AT & T (NYSE: T) added another entry into Wall Street's history books Thursday as it priced its wireless tracking stock at $29.50 per share. Not only did the AT & T Wireless Group (NYSE: AWE) rake in a whopping $10.62 billion in proceeds from the 360 million share deal, but the deal also ranks as the largest U.S. initial public offering ever, almost doubling the former leader United Parcel Service (NYSE: UPS)'s $5.5 billion issue.
Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), and Salomon Smith Barney acted jointly as lead managers underwriting the stock, which opened at $30.13 per share, a meager 2 percent from the offer price. But with the sheer heft of the issue and the Nasdaq Composite index pin-balling 100 points down and 50 points up, Wall Street did not expect a tremendous pop from the offering.
"Two percent? That's not too shabby in a market like this," said one Merrill Lynch syndicate person.
By the end of the day, AWE was up eight percent over the offer price, closing at $31.81 per share on a volume of over 137 million shares. The company, which is a tracking stock for telecom giant AT & T headed up by CEO John Zeglis, will have 2.31 billion shares outstanding, giving it an initial market cap of $68.1 billion -- roughly 42 percent of the size of AT & T's own market capitalization of $161 billion.
COMPETITIVE EXPANSION
After the offering, AT & T retains about 82.5 percent of equity interest in AT & T Wireless. The parent company plans to use about $7 billion in proceeds from the IPO, plus an additional $5 billion credit line, to acquire, upgrade, and expand its network.
Expansion is a must because the competition among wireless providers is heating up. Sprint (NYSE: FON)'s PCS (NYSE: PCS) division has been trading as a tracking stock since November 1998, with a current market value of about $47.86 billion. MCI Worldcom (Nasdaq: WCOM) is acquiring Sprint.
Until recently, AT & T was the largest wireless carrier in the United States, with 12.2 million subscribers. Now that Bell Atlantic (NYSE: BEL) and Vodafone Airtouch (NYSE: VOD) have merged their operations into the new Verizon Wireless brand, however, that ranking will change. Verizon will have about 23 million subscribers after GTE (NYSE: GTE) joins the company.
Additional competitive pressure exists from the likes of Nextel Communications (Nasdaq: NXTL), VoiceStream Wireless (Nasdaq: VSTR), and SBC Communications (NYSE: SBC).
THE EMPEROR'S NEW WIRELESS
The benefit to the company is clear: AT & T gets more than $3 billion from the IPO for "general corporate purposes," and AT & T Wireless gets more than $7 billion to build out its network. But what about individual investors?
The AT & T Wireless stock will track the performance of AT & T's wireless assets, but shareholders of the new issue won't have any voting rights. AT & T, which controls the AT & T Wireless board of directors, can also convert AT & T Wireless shares into AT & T common stock or buy back all of the outstanding shares after two years.
So, what do you get? Right now, about $30 worth of hope that the wireless sector will grow as rapidly as experts predict. The number of wireless phone users grew by 16.8 million last year, the biggest single-year gain, to reach almost one-third of all Americans. There were 86.1 million customers subscribing to wireless services last year, a 24 percent increase from 1998, according to a recent report from the Cellular Telecommunications Industry Association.
Discuss wireless technologies and trends in the ongoing Wireless discussion forum, or visit the Discussions home page.
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