NEW YORK (CNNfn) - AT&T Wireless raised roughly $10.6 billion in its initial public offering late Wednesday, ranking it as the largest U.S. IPO ever and breaking a nearly week-long drought of new companies debuting on Wall Street.|
AT&T Wireless priced 360 million shares at $29.50 per share, the middle of its expected pricing range. Even after the offering, AT&T Wireless' parent company, AT&T Corp. (T: Research, Estimates), will retain control of 80 percent of the company's stock. The company will trade under the symbol AWE as a tracking stock. Trading in the new issue commences Thursday.
The deal, underwritten by a host of banks and brokers coordinated by Goldman Sachs, Merrill Lynch and Salomon Smith Barney, dwarfs the previous IPO record of $5.47 billion raised by UPS (UPS: Research, Estimates) last year.
According to analysts, pricing the shares in the middle of its range is an indication that the company is comfortable with its target and is not expecting the stock to double or triple once the market opens.
"For a deal this size it's not unusual to price in the middle," said Alert!IPO senior analyst Corey Ostman. "What it means is that it's a solid deal and was priced accordingly."
Ostman said that the price had to appeal to institutional investors because that is the only way to move 360 million shares.
Brian B. Haywood, of Invesco's Telecommunications fund, said a lower price might have been more attractive.
"I wouldn't have been upset if they had priced it lower," Haywood said. "This thing has to work."
According to Irv DeGraw, research director at WorldFinanceNet.com, the pricing came up slightly higher than he expected, which is a positive development, and the deal is certain to go off without a hitch.
"They're saying, 'We're going out and we're going to raise $10.5 billion,'" DeGraw said. "They're saying, 'We're giving birth to a Fortune 500 company.'"
Whither share price?
The highly anticipated offering is the first IPO to hit a jittery Wall Street in nearly a week, but analysts said investors who get in on the ground floor should not expect the phenomenal rise in share price that has been the hallmark of technology and telecommunications IPOs.
Even the smallest gain would see the company double the UPS IPO and give AT&T Wireless the firm financial footing it wants. Analysts say a lot could depend on the overall market Thursday.
"I'm expecting a modest first day ... gain of 5 to 15 percent," DeGraw said. But he stressed that it is the size of the deal, rather than any problem with the IPO, that will keep shares from rocketing.
"If this were a 10 million share deal you'd see it jump all over the place, even in this market," DeGraw said. "With a deal of this size, pricing is much closer to fair market."
Jeffrey Hirshkorn, senior market analyst at IPO.com, said market conditions would make it tough for what is a very good IPO.
"The way I see it: great deal, bad market, minor gains," Hirshkorn said.
If the IPO does well it could rejuvenate a battered public offering market in a month that that has not been kind to debuts.
Just in the week of April 10-14, 16 of the 26 companies planning to sell shares publicly for the first time never made it to the open market.
Five of those companies chose to postpone their offerings indefinitely and two took the rare step of withdrawing their offerings altogether, citing the inhospitable market conditions. Eleven others postponed their pricing dates, including two that readjusted their offering terms to try and induce more demand.
Among those that did come out, many were battered. Five of the 10 new offerings priced below their expected price range, while three finished their first day of trading in negative territory.
""The whole IPO market has been waiting for AT&T Wireless to see what investors do," Ostman said. If there is reasonable demand for shares it could put a lot underwriters at ease.
AT&T employees at the mercy of the phone
In what many see as an effort to make amends for leaving employees out of the Lucent (LU: Research, Estimates) spin-off, all AT&T workers will have a chance to buy 10 percent of the available shares at the offering price - a four-hour chance.
The 150,000 employees who filed to buy shares will be hoping their phone connections are free of bugs, as they have only four hours after pricing to confirm their share commitment. Workers have already committed to the number of shares they want to purchase, but must officially recommit. They have the option to reduce, but not increase, their request.
Because the company expects the offering to be oversubscribed, shares will probably be allocated on a proportional basis.
"There's going to be a lot of disappointed people tomorrow," DeGraw said. "But the stock won't be doubled. If they do miss the window it won't be the end of the world."
Fidelity Investments, acting as a middleman for the employees, will have 1,000 extra employees at the ready to deal with the volume of calls.
What does a share of AWE get me?
Investors buying into AT&T Wireless will get shares in a strong company that had first-quarter earnings of $430 million and revenue of $2.2 billion and added 418,000 new subscribers. The company has about 12 million subscribers and offers a wireless dial tone in 65 percent of the country.
They are also in a sexy sector with enormous growth potential.
Jeff Hines, wireless analyst with Deutsche Bank, told CNNfn taking wireless divisions public is becoming a trend, as companies try to improve the wireless division cash position as they compete in the, "whole trend in telecom, that is voice going to wireless and Internet going to wireless."
Some analysts have speculated that eventually all voice and e-commerce will be wireless.