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Where AT&T Wireless went
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April 27, 2000: 11:05 a.m. ET
The biggest U.S. offering ever was available, but was it worth buying?
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Were retail investors able to get their mitts on the biggest initial public offering in American history? More than likely, if they wanted to, experts say. In fact, 35 percent of the offering went to employees and individual investors.
And, if they missed out, they could pick it up in the aftermarket without paying too heavy a premium.
Still, the $10.6 billion IPO of the AT&T Wireless tracking stock made a splash. Thanks to the IPO mania of the last two years, investors around the world had to check with their brokers Thursday to see if the ripples were nice and liquid in their accounts.
Investment banks normally say they distribute IPO shares "80-20." That means 80 percent goes to institutional investors such as mutual fund and pension companies and 20 percent to Main Street, "retail" investors.
The AT&T Wireless ratio was 65-35, an investment-banking source told CNNfn.com. That includes the 10 percent of the shares AT&T set aside to sell to employees. The size of the offering helped explain why more shares ended up on Main Street, experts said.
Strong employee demand
Investment banks typically don't reveal how they distributed shares, after the Securities and Exchange Commission stopped requiring them to.
 But at 35 percent, around 107 million shares of the tracking stock went to U.S. retail investors at the offering price, $29.50. AT&T Wireless Group, which is run out of Redmond, Wash., set aside 306 million shares for sale in the United States, with 54 million shares going overseas. Underwriters can exercise an overallotment of 54 million more shares if demand is strong.
AT&T Wireless spokeswoman Eileen Connolly said AT&T employees snapped up all of the 36 million shares at their disposal. She said roughly 60,000 employees participated in the offering, purchasing an average of 629 shares each. Everyone who applied for shares got at least a portion, if not all, of what they wanted, but officials were not saying how much excess demand there was.
On the IPO's first day of trading Thursday, individual investors snapped up what shares became available, pushing its price 7 percent higher by late morning.
Enough to go around
Investors said there was plenty of stock to go around. One broker at a Prudential Securities branch said that there was stock available after the branch's brokers had submitted their early indications of interest ahead of the IPO. "That's not the sign of a really hot stock," the broker, who wants to remain anonymous, said.
By Wednesday evening, he had not received any unsolicited calls from investors looking to buy stock. "There was no clamoring on my end," he said.
Mike Strong, an associate producer for the Sothebys.com Web site and an investor who likes buying IPOs, agreed there were probably shares to spare.
"There are so many bazillions of shares out there that I think anybody who really wants to get a little piece of that will be able to," Strong said. He signed up for shares through online IPO specialist Wit Capital but let the application lapse. He didn't think it was worth his while.
IPO trackers were expecting the AT&T Wireless tracking stock to rise between 5 percent and 15 percent the opening day. With a 7 percent pop, Strong pointed out he would have to invest $2,950 to make $200.
"I don't know if that's really attractive," Strong said. He would also have to hold the stock for 60 days. Wit penalizes investors who "flip" stock by selling immediately. Instead he is saving his money for Sequoia Software (SQSW: Research, Estimates), a small tech IPO slated for early May.
To the winner goes the spoiled
So the huge size of the offering means AT&T Wireless investors have a new take on the "winner's curse." That theory suggests that if retail investors get stock in an IPO, it's inevitably a dog -- they only got it because institutions didn't want it.
Though more muted than normal, there is institutional interest in AT&T Wireless -- many index funds will have to buy the stock anyway, and it will likely be a core holding for any fund going for wireless exposure.
 But large offerings are much less exciting to investors that land stock because they're priced much more efficiently. Given the breadth of the AT&T offering, the underwriters have a better grasp of demand. AT&T also had the clout and experience to demand efficient pricing.
"To misprice this offering, the underwriters would have to be morons," said Irv DeGraw, senior research director of WorldFinanceNet.com, which tracks IPOs. "There are so many investors involved here that it's priced very accurately right away."
That's in stark contrast to a typical tech-stock IPO, where there is huge demand for a small number of shares, say 4 million. In those offerings, retail investors are lucky to get more than 5 percent of the stock. Even institutions have to scramble to build significant positions in the aftermarket.
A calmer IPO market
The U.S. portion of AT&T's offering is 50 times the size of a typical IPO, according to Jay Ritter, an IPO authority and a professor of finance at the University of Florida.
"I doubt there are going to be 50 times as many individuals wanting to get shares," he said. The offering was rumored to be oversubscribed by about 2:1, though the company only said demand was strong.
The lack of a first-day pop means AT&T Wireless is of much less interest to "IPO investors" than it is to long-term investors. Many IPO investors have also grown wary of tech stocks in April.
Strong's potential take looked paltry compared with returns for other recent IPOs. Coming off a record year last year, IPOs set an all-time record for first-day returns in the month of February, when 27 posted gains of more than 100 percent on their debut. The average IPO gained 116 percent. January IPOs averaged 86 percent and March averaged 85 percent.
But for April, IPOs are averaging gains of around 30 percent, according to Ritter. Not surprisingly, the number of voices clamoring for them has dwindled, particularly as tech stocks have melted down. "The insanity has largely disappeared," Ritter said.
Ritter thinks the massive demand for IPOs over the last 18 months is a one-time aberration. After all, IPOs averaged just a 5 percent increase in the '80s, once considered a go-go decade. But Ritter also expected the IPO mania to end after six months and it continued for a full year more. "Much to my surprise, the insanity got even worse," he said.
Suzanne Richardson, president of FBR.com, which provides online access to IPOS, expects demand to return. "The market is a market, it goes up and down," she said. But she sees no fundamental change in the economy. "You have slowdowns, but it doesn't seem to have dampened anyone's interest."
Online IPO brokers lower on the list
Notably, none of the new breed of online brokers offering e-mail IPO distribution to retail investors were in the lead group of 17 underwriters. Instead that team of co-managers is a "who's who" of old-line investment banks -- headed by joint lead managers Goldman Sachs, Merrill Lynch and Salomon Smith Barney.
Goldman Sachs is part owner of online IPO specialist Wit Capital, and it likes to make sure Wit gets stock in Goldman deals. But Wit appeared further down the syndicate of underwriters, off the "front page" with its peer group Friedman Billings Ramsey's FBR.com and E*Trade affiliate E*Offering.
So the online brokers who promise to "democratize" IPOs did get shares to distribute to their customers, though they wouldn't say how many. The co-managers get the lion's share of stock, though, and underwriters further down the syndicate don't dictate their role, simply being allocated a certain number of shares.
Big demand from the bankers
Experts say there was simply too much competition for the top underwriting slots for the online brokers to land one.
"They're not prepared to handle this kind of volume, and they got squeezed out by the big guys," DeGraw said.
The old-line large investment banks took a "close shave" on the deal, DeGraw said, cutting their regular 7 percent commission on the offering significantly. In the prospectus, AT&T revealed fees were running about half that, at 3.6 percent.
For the banks, the profit and prestige of being part of the largest IPO in U.S. history weren't the only, or even the main, incentives. They gave AT&T a good deal on this IPO to win future investment banking business, DeGraw said.
That includes equity deals but also mergers and debt issues, which are more profitable and less risky than equity offerings because they're easier to price. "I guarantee these guys cut deals that apply for years," DeGraw said.
The founders of new tech-stock companies may feel IPO money appeared from nowhere. As a result, they're willing to leave some of it "on the table," for clients, suppliers, customers and the like. Some also value the publicity of a first-day pop. But AT&T has the brand, experience and size to demand efficient pricing and less motive to give money away, IPO experts said.
A better long-term play
As a result it appealed more to long-term investors, the type of stockholders most companies want in the first place. It might help shorter-term investors, too. A large tech IPO moving slowly into a tumultuous market might stabilize all tech-stock prices, DeGraw said.
AT&T Wireless was viewed as a relatively risk-free IPO, given its size. Still, day traders and flippers who got their hands on AT&T Wireless shares are unlikely to get much of a gain from the IPO.
"When one serves dinner for four friends, one might serve caviar," said Ivo Welch, a professor at Yale University who studies IPOs. "But when one serves dinner for 400 friends, one would more likely serve hot dogs."
--Click here to send email to Alex Frew McMillan
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