Flash-forward to the present. Wireless, which seems to have acquired “beleaguered” as part of its name almost from the day it split off from AT&T, announced last week it was entertaining takeover offers. If things go well, the company might fetch $12.50 a share–almost 60 percent less than people paid in the spring of 2000, when telecom was in bloom.
This is a tale full of irony, including the fact that selling its Wireless stake at fancy prices turns out to have been probably the smartest financial move AT&T Corp. has made since it broke up in 1984. Although one big domestic wireless company (Cingular of Atlanta) and three big foreigners (Vodafone of England, NTT DoCoMo of Japan, Deutsche Telekom of Germany) are supposedly sniffing around, nothing has been heard from Wireless’s most logical buyer: AT&T. That’s because Wireless’s former parent, which sold its big cable-TV business to Comcast last year, has a market value only half that of Wireless, and can’t afford $30 billion.
The decline of AT&T Wireless–and, indeed, of the whole telecom industry–is an example of what can happen when markets and technology change rapidly. If you compare today’s AT&T Wireless with the company that went public on April 27, 2000, you have to consider today’s company a lot more valuable. It’s got wireless licenses for more than twice the population (80 percent-plus of the United States, compared with 37) it had when it went public, it’s got triple the revenues, it’s even managed to tie itself to the technology that’s dominant outside the United States–hence so much foreign interest. Yet the stock market, in its wisdom, valued AT&T Wireless at about $75 billion when it went public, and at less than half that level today.
While other wire- less players did joint ventures–SBC Corp. combining with BellSouth, Verizon mating with the former US West–AT&T Wireless stood alone, proudly public. That was an advantage when the market loved “pure play” wireless stocks. But those days are over. From its IPO through the end of last year, before takeover talk started boosting its stock, Wireless shares fell 75 percent, according to data that Wireless is circulating. Wireless says that’s average for the industry. Even companies like Verizon, BellSouth and SBC were down about 40 percent during this same period.
While AT&T Corp. made out brilliantly by unloading Wireless, it acted out of financial necessity rather than strategic genius. But its timing couldn’t have been better. In all, AT&T realized about $32 billion by unloading Wireless shares in various tax-efficient ways, and also distributed Wireless shares worth about $19 billion as a dividend to AT&T’s shareholders.
Although at the time AT&T insisted publicly that it was in fine financial shape, insiders feared a cash crunch and believed they had to do something. Because AT&T was betting its future on cable and its long-distance business was visibly corroding, the logical thing to sell was Wireless. It was a sale that looks better with each passing day.
Amazingly, the biggest suckers weren’t America’s retail investors who flocked to the IPO. It was DoCoMo, the gigantic Japanese wireless company. DoCoMo spent $10.2 billion to buy a 17 percent stake in Wireless, most of it at $24 a share. It would lower its average cost substantially if it ended up buying the rest of the company.
With luck, Wireless shareholders will soon hear a new ringtone–ka-ching!–rather than the Nokia theme song or William Tell Overture. With all sorts of wireless firms showing an interest in AT&T Wireless, chief executive John Zeglis told NEWSWEEK, “We owe it to our shareholders to see if these approaches will produce a higher value than a stand-alone approach.” And we all owe it to ourselves to remember that when the market can’t get enough of something, such as telecom, you might do better to sell rather than buy.
