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Sprint may take PCS unit public

The telco files documents with the SEC indicating that it intends to make a public offering of shares in its wireless phone business.

Further clouding questions about the strength of the current IPO market, telecommunications company Sprint has filed documents with the Securities and Exchange Commission indicating that it intends to make a public offering of shares in its wireless phone business.

Sprint first announced the plan to offer a separate tracking stock for Sprint PCS, the digital wireless telecommunications service joint venture between Sprint and cable television giants Tele-Communications Incorporated, Comcast, and Cox Communications, in May.

However, with 1998 standing out as a particularly poor year for IPOs, many companies have been reluctant to go public. Notable exceptions to the year's dismal IPO trend have been and GeoCities, which had stellar public offerings this summer, and eBay, which last week broke a month-long IPO drought by nearly tripling its share price.

"They know it's a soft market," said Anthony Ferrugia, a telecommunications analyst with investment bank AG Edwards. "The reason they'd rather do the IPO is that it would be a better mechanism for establishing the initial valuation."

Sprint PCS is an all-digital wireless communications business serving 161 major metropolitan markets in the United States. By offering shares in the division, Sprint hopes to raise $600 million to continue building out its wireless network, according to SEC documents. Between 1996 and 1997, the wireless subscriber growth rate was more than 25 percent, according to the Cellular Telecommunications Industry Association.

Shares in Sprint PCS would trade under the symbol "PCS" on the New York Stock Exchange, according to the company's prospectus. Sprint's current "FON" stock would track the company's local and long distance phone services, in addition to its other non-wireless business units.

Ferrugia said Sprint is likely to offer two separate classes of common stock--FON for the long distance business and PCS for the wireless unit--by the end of the year, regardless of whether the company decides to go public with the "PCS" shares. In doing so, Sprint investors would get 53 percent of the new PCS shares. (Sprint owns a 53 percent stake in the wireless venture, while the three cable TV companies own the remaining 47 percent.)

But Ferrugia said there is some concern that splitting the PCS shares without an IPO will make it difficult for investors to know if the stock is undervalued or overvalued.

"Investors who prefer the more conservative long distance phone business may sell their PCS shares, and that could potentially put pressure on those shares in the near term," he said, adding that Sprint is expected to make a decision on whether to take the PCS shares public within the next 30 days.

Sprint stock has been up significantly during the past three weeks. Today, however, the shares were down nearly 2 percent at 75.8125 in midday trading. The stock has traded as high as 80.125 and as low as 47.0625 during the past 52 weeks.

Solomon Smith Barney and Warburg Dillon Read will serve as joint-lead underwriters on the Sprint PCS offering. Other underwriters include Merrill Lynch, Donaldson Lufkin & Jenrette, Lehman Brothers, and J.P. Morgan Securities.