While the event was not celebrated with fireworks across the country, AT&T Wireless finally was able to celebrate its independence last week as it began its first trading day as an independent company. And, while most people were not expecting AT&T Wireless’ stock to go through the roof, there was some hope a strong showing would signal a possible recovery for the wireless industry.
But, instead of fireworks, Wall Street greeted the news coolly, knocking AT&T Wireless’ stock down roughly 3 percent on its first day of freedom.
Leading up to last Monday’s first trading day, AT&T Wireless’ tracking stock hovered between $16.50 and $17 per share, just ahead of its 52-week low of $15.29 set in mid-June. The stock was up slightly in early Monday morning trading to near $17.25 per share before succumbing to a general market downtrend and closing the day just above $16.50 per share. Even with its eventual downturn for the day, more than 39 million shares of AT&T Wireless traded hands last Monday, well above the stock’s average of around 6 million shares.
“There was a lot of discussion leading up to the spinoff of the stock as to what it would do,” said Frank Marsala, vice president of wireless research at Robertson Stephens.
“If its [AT&T Wireless’] churn rate was 3.5 percent for the second quarter, that would have more of an impact than the spinoff on its stock.”
Marsala noted the various steps AT&T Corp. used in the split allowed most investors who wanted in or out of AT&T Wireless to make their moves over a period of time. But, even with the muted reception, the move is expected to pay off for AT&T Wireless.
“While this action significantly increases the float of [AT&T Wireless] shares in the market, we believe the split off will ultimately benefit AT&T Wireless as the company will be relieved of any strategic conflicts with AT&T’s other businesses, will no longer need to compete for funding with AT&T’s other divisions and will be able to use its stock more efficiently for acquisition purposes,” Marsala said.
The move toward independence also raised speculation that AT&T likely would become a takeover candidate. NTT DoCoMo, which owns 17 percent of AT&T Wireless, is often mentioned as a likely buyer.
To proceed with the spinoff, the parent company converted AT&T Wireless tracking stock into 1.1 billion common shares and distributed them to AT&T common stockowners. In addition to be out from under AT&T Corp.’s control, AT&T Wireless said it expects the move to benefit its customers.
“We’ve prepared and we’re ready on all fronts,” said John Zeglis, chairman and chief executive officer of AT&T Wireless. “As an independent company, we expect to have increased operational agility, more efficient deployment of resources and enhanced customer responsiveness.”
Robinson-Humphrey analyst Jason Bell echoed Zeglis’ position of increased operations flexibility for a free AT&T Wireless.
“We continue to view this as a strategic positive that should increase financial flexibility and remove the tracking stock overhang,” said Bell. “We obviously expect heavy volume and some volatility this week, but we feel downside potential is limited. AWE has historically traded as a premium valuation and we expect that to occur again this year. Hence, we see this as a buying opportunity and we reiterate our outperform rating.”
Wireless vendors, most of whom have seen their own stock prices battered recently, showed their support for AT&T Wireless by publicly congratulating the wireless carrier with advertisements in national newspapers. Lucent Technologies Inc., Motorola Inc., L.M. Ericsson and Nortel Networks Corp. placed a variety of ads in the Wall Street Journal last Monday.
Motorola’s ad read: “We were so excited when we heard, that we organized fireworks all across the country. They were on Wednesday,” referring to the Fourth of July the previous week.
For the wireless industry as a whole, Marsala does not expect the tepid response AT&T Wireless received to have much of an impact on planned future wireless offerings from other telecom companies. Both Verizon Communications and Cingular are expected to spin off their wireless units in the future, while Sprint has said it plans to raise around $3 billion in a bond offering of Sprint PCS.
“Verizon wants to get something done this year, and I think they still will,” Marsala said. “I think Cingular is willing to wait a little longer before spinning off its wireless holdings. I don’t think [Sprint] PCS will change its plans to raise $3 billion this year. One way or another, it will do it.”
While the other operators wait to make their moves, AT&T Wireless can lay claim to being the largest independent wireless operator in the United States.
