NEW YORK -- AT&T; Corp., testing a slumping market for telecommunications shares, sold $10.62 billion of stock in its wireless unit, as investors bet on surging cell phone use in the biggest U.S. initial public offering.
The New York-based company sold 360 million "tracking" shares at $29.50 each, the midpoint of the expected range of $26 to $32 set by Goldman, Sachs & Co., Merrill Lynch & Co., and Salomon Smith Barney Inc. The underwriters earned $318 million based on a 3 percent fee.
The sale of the 16 percent stake gave AT&T; Wireless Group a market value of $68.15 billion. Completing the IPO as the shares of rivals such as Nextel Communications Inc. sagged 30 percent the past seven weeks underscored demand for a business whose earnings doubled to $430 million the first quarter.
"This is a company that will be here in five or 10 years, unlike the vast majority of Internet IPOs," said David Menlow, president of IPOfinancial.com. "AT&T; has national and international recognition."
The sale of tracking shares, which provide an economic but not ownership interest, surpassed United Parcel Service Inc.'s U.S.-record $5.5 billion IPO last year. It ranks as the sixth-biggest on record, behind NTT Mobile Communications Network Inc., Enel SpA, British Petroleum Co., Deutsche Telekom AG and Telecom Italia SpA, according to Thomson Financial Securities Data. AT&T;'s wireless unit is the third-largest wireless network in the United States based on its 12.2 million subscribers. The unit includes AT&T;'s voice and data wireless business, interests in international wireless companies, and wireless operations that provide local phone services.
Even with robust growth projected for cell phone use, the new shares are unlikely to rise much, said Dan Cook, a money manager with Stone- Ridge Investment Partners LLC in Malvern, Pa., which manages about $900 million. He said he bought a "small" number of AT&T; wireless unit shares. "I'm perfectly fine with this company; the crux comes down to the valuation," he said.
The wireless unit shares will trade for about 61 times 1999 cash flow. The valuation puts the shares in line with some competitors. Nextel is trading at 67 times, and Vodafone AirTouch PLC, the world's largest mobile-phone company, trades for about 59.
The wireless unit will receive about $7 billion of the proceeds from the sale, using the money to expand its network, for possible acquisitions and for capital expenditures. AT&T; will receive more than $3 billion.
The investment banks completed the AT&T; Wireless Group at a time when most investors have grown leery of initial stock sales. 360networks Inc., which is building a North American fiber-optic network, completed its $625 million initial sale last week only after it reduced the expected price of its shares by 22 percent. More than 40 companies have cancelled IPOs in the past six weeks, as the Nasdaq composite index slumped 28 percent from its March peak.
Use of wireless communications is expanding rapidly. The number of wireless phone users grew by 16.8 million last year, the biggest single-year gain, to reach almost one-third of all Americans. There were 86.1 million customers subscribing to wireless services last year, a 24 percent increase from 1998, according to industry figures.
Wireless phone companies are expanding the capabilities of wireless devices to include Internet access and other data services to capitalize on rapid growth. Consumers used their wireless devices an average of 180 minutes a month last year, compared with 130 minutes in 1998, the group said.