From the Financial Times:
TUESDAY JANUARY 5 1999 Americas
AT&T: Telco to unveil details of TCI merger plan
By Richard Waters in New York
AT&T is expected tomorrow to give detailed plans for its merger with TCI Communications, which will create the latest in the series of "tracking stocks" that have become popular in the US telecommunications sector.
The long-awaited details of the merger could, however, leave a shortage of the new tracking stock available for would-be investors, creating a scramble for the new shares when the merger is finally completed.
News of the new tracking stock, together with a ratings upgrade from Dan Reingold at Merrill Lynch, contributed to a 3.5 per cent jump in AT&T's share price. By the end of trading in New York, the shares closed at $77 15/16, up $2 11/16 on the day.
AT&T had announced plans for a tracking stock when its purchase of TCI was unveiled last summer. At that time, it said it planned to issue a new class of shares to reflect the performance of its residential services - including both TCI's cable television operations and its own long-distance telephone service.
That would enable it to separate the high-growth cable operation, which generates little in the way of after-tax earnings, from its existing telephony business, which is valued by stock market investors on the basis of its earnings per share.
According to Mr Reingold, however, AT&T has now changed that plan to create a tracking stock that reflects the different financial characteristics of its operations, rather than their different customer bases.
That would leave a new stock tied only to the company's high-growth, low-earnings operations - its cable television and wireless telephony businesses. Everything else - including residential long-distance - would then be grouped with the other telephony services.
The earlier plan "has been thrown out the window . . . because it doesn't work in terms of valuations," Mr Reingold said yesterday.
However, there may only be a small "float" of shares available for investors who want to buy into the tracking stock.
The Merrill analyst said he expected AT&T to retain 80 per cent of the shares itself, while selling 10 per cent from an initial public offering and allowing existing investors to swap their AT&T stock for up to 10 per cent of the new shares.
That arrangement could make only around $7bn of the tracking stock available to existing shareholders, compared with the near-$40bn market value of TCI, according to Mr Reingold. >>>> |
