I don't like to say "I told you so", but in this case, I did. See the post that I'm responding to...
interactive.wsj.com
December 18, 2000
Nest Eggs Crack as Stock
Of AT&T Wireless Falls
By DEBORAH SOLOMON
Staff Reporter of THE WALL STREET JOURNAL
Thomas Raeber wants his savings back.
Last April, the AT&T Corp. employee bought
into the company's hot initial public offering of
its wireless unit, AT&T Wireless Group, sinking
more than $20,000 into the stock. Mr. Raeber,
who had watched other wireless stocks soar
over the past year, was sure this was his ticket to riches. The 23-year-old,
who works for AT&T's Internet service, cashed in certificates of deposit
that his parents had got for him when he was born, and even asked his
grandmother for a loan.
"I put everything I had into it," says Mr. Raeber. "Everything I read said it's
going to be a rocket, man, it's going to go off."
Mr. Raeber's rocket has since been grounded.
Since the April 27 IPO, the stock of AT&T Wireless has dropped as much
as 40% from its $29.50 offering price. The stock hit a high of $36 on May 1,
but has struggled to break past $20 in recent weeks. In 4 p.m. New York
Stock Exchange composite trading on Friday it fell $1.19 to $21.81, down
26% from the IPO.
Mr. Raeber, who bought more than 700 shares in the IPO, sold about half
his shares when the stock was at $24 and is holding on to the rest.
"I took a wash," he says.
He's not alone. When AT&T announced the IPO for its fast-growing
wireless arm earlier this year, it did something unprecedented for a company
of its size: It told its employees they could get in on the deal. About 57,000
employees took advantage of the offer, hoping for a chance to hook their
fortunes to the highflying wireless unit, which would trade as a tracking
stock of AT&T. They borrowed money, cleaned out 401(k) accounts and
took out second mortgages in an attempt to profit from the red-hot wireless
industry.
The idea was to give employees the
opportunity to profit from a
fast-growing, home-grown unit and
avoid what had happened four years
earlier. In 1996, the company spun
off Lucent Technologies Inc. in what
was then the largest IPO ever in the
U.S. But AT&T employees didn't
get any shares and watched with
envy as their former colleagues, who
were loaded up with stock options,
got rich.
This time around was going to be
different. But AT&T employees
bought into the wireless stock at a rocky time. The market, which had
treated wireless concerns with a velvet glove, was beginning to get hostile
and wireless stocks were starting to falter.
No one has been spared. Since AT&T Wireless went public, shares of
Sprint PCS have dropped 48%, while shares of Nextel Communications Inc.
have fallen 43%. The entire telecommunications industry, once considered
Teflon, has taken a beating in the past few months as the roaring stock
market has sputtered.
IPOs have been particularly hard-hit. Hot new technology stocks were all
the rage earlier this year, when buying into almost any IPO seemed a sure
way to instant wealth. Now, about two-thirds of this year's IPOs are trading
below their offering price, some of them at just pennies a share. The
average IPO is down 14.8%.
Beyond market factors, industry observers say AT&T Wireless's stock has
also suffered from "tracker discount" and is being punished for its association
with parent company AT&T, which is going through its own problems and
has seen its stock plummet more than 60% in the past year.
Many of those factors could be resolved next year when AT&T Wireless is
spun off into a separate, asset-based common stock. Industry observers are
bullish on the company, which is growing at a rapid clip and is the nation's
No. 3 wireless carrier (behind Verizon Communications Inc.'s Verizon
Wireless unit and Cingular, a joint venture between BellSouth Corp. and
SBC Communications Inc.). AT&T Wireless reported 37% revenue growth
last quarter and a record number of new customers. It also recently
announced a $9.8 billion investment from Japan's NTT DoCoMo.
But for now, many of AT&T's employees are holding shares that are
underwater. While some people cashed out early after an initial stock pop,
the majority of employees have not sold their shares, according to AT&T
officials.
The experience of AT&T Wireless's stock debut and subsequent plunge
offers only the latest lesson in the foibles of IPO investing. But it didn't come
without warning. While AT&T offered its employees the opportunity to get
in on the IPO, it also made sure to caution them about the risks involved with
investing.
The company, which used Fidelity Online Brokerage and Lehman Brothers
to handle the employee portion of the IPO, sent information packets that
detailed the risks and offered employees phone numbers to call to talk about
whether to invest.
"We worked hard to have people understand this was not a get-rich-quick
opportunity," says a spokeswoman with AT&T.
Still, employees like Geri Veaudry were certain the stock was going to shine.
Mrs. Veaudry borrowed a couple of thousand dollars and emptied her
Christmas Club account to buy 600 shares of AT&T Wireless at the IPO
price. But when it appeared the stock was not going to rally, she sold it off,
to the tune of a $1,000 loss.
"I was surprised that it took a dive as quickly as it did," says Mrs. Veaudry,
an account representative at AT&T. "It's been rocky. I had a lot of faith that
it would do very well, and I was quite taken aback when it didn't."
She had so much faith, in fact, that Mrs. Veaudry consolidated all her 401(k)
into AT&T stock, thinking the parent company would get a nice pop from
the wireless IPO. Instead, the stock has dropped 56% since the wireless
IPO.
While she lost money on the AT&T Wireless stock, Mrs. Veaudry says
she's more upset about her 401(k), which has lost two-thirds of its value.
"We're all wondering, 'How much lower can AT&T go?' " she says.
"Fortunately, I've got a few more years to work, so I can hang in there, but
for some of the folks close to retirement, this is a real concern for them.
They may have to postpone that decision."
Still, others are continuing to hang on to their AT&T Wireless shares,
convinced that the investment is a good one for the long term.
"I'm definitely holding on," says Robert Fleissner, a manager of network
performance for AT&T Wireless. Mr. Fleissner, who bought 800 shares in
the IPO, says he's disappointed that the stock hasn't shot up, but he still
expects his shares eventually to soar.
"It was a soft time to launch the IPO because there was no momentum" to
lift the stock, he says. "But I'm not planning on going too far. This is a good
company and a great industry. The stock will come back."
Write to Deborah Solomon at deborah.solomon@wsj.com
KJC |
