AT&T Wireless makes modest gains in debut

Shares of AT&T Wireless (NYSE: AWE) closed up 2 5/16, or 8 percent, to 31 13/16 in heavy trading Thursday in the largest U.S. initial public offering ever.

More than 137 million shares changed hands in its first trading day.

The tracking stock of AT&T (NYSE: T) priced 360 million shares Wednesday night at $29.50, the middle of its $26 to $32 pricing range.

AT&T worked with underwriters Goldman Sachs, Merrill Lynch and Salomon Smith Barney on the deal. An army of Wall Street firms are distributing shares.

Although the first day opening would appear sluggish by recent IPO standards, the sheer girth of AT&T Wireless limits gains. Many IPOs go public with a small float of about 5 million shares.

"This is about long-term capital appreciation," said David Menlow, head of IPOfinancial.com. "This one will have no appreciable premium and trade like a featureless IPO, but it will grow over time."

On Monday, AT&T said first quarter revenue for the AT&T Wireless Group grew 40.7 percent to $2.2 billion from $1.6 billion a year earlier. When adjusted for the purchase of Vanguard Cellular in the second quarter of 1999, revenue increased 33.1 percent, it said.

AT&T Wireless added 418,000 subscribers in the first quarter, up from 372,000 in the first quarter of 1999. Earnings before interest, taxes, depreciation and amortization, or EBITDA -- excluding other income and restructuring costs -- grew 112 percent to $430 million from $203 million a year earlier. AT&T also upped its EBITDA growth projections to 40 percent to 45 percent.

Ma Bell's wireless unit has 18,000 employees and $7.6 billion in revenue for 1999. Including partners, AT&T Wireless has more than 12 million subscribers. John Zeglis, 52, will be CEO of the wireless unit, and Mohan Gyani, an alumni of AirTouch Communications, will be chief financial officer. For 1999, it lost $321 million on a pro forma basis.

In addition, AT&T Wireless is a so-called "tracking stock." The AT&T Wireless stock will track the performance of AT&T's wireless assets. But shareholders of AT&T Wireless won't have the same voting rights that an AT&T shareholder enjoys. Ma Bell, which controls the AT&T Wireless board of directors, can convert AT&T Wireless shares into AT&T common stock.

Ma Bell 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.

AT&T Wireless will need the cash to fend off the competition. Sprint's PCS unit (NYSE: FON, PCS) is already trading as a tracking stock. The company also competes with Nextel (Nasdaq: NXTL), the Bell Atlantic/GTE/Vodafone/AirTouch (NYSE: BEL, GTE, VOD) joint venture, MCI WorldCom/Sprint (Nasdaq: WCOM), VoiceStream Communications (Nasdaq: VSTR) and SBC Communications (NYSE: SBC).