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. Last Updated: 07/27/2016

AT&T IPO Brings in Record $11Bln

NEW YORK -- Telephone giant AT&T Corp. priced its wireless tracking stock at $29.50 per share Wednesday, raking in a hefty $10.62 billion through a deal that ranks as the largest U.S. initial public offering in history.

AT&T's offer is nearly twice the size of the initial public offering of package delivery company United Parcel Service Inc., which raised $5.5 billion through its Wall Street debut last November.

The No. 1 U.S. long-distance company said it plans to use the first $7 billion in proceeds to build the wireless operations through acquisitions or network expansions. The remaining proceeds will go toward general corporate purposes at the AT&T common stock group.

For AT&T executives, the IPO is a rare cause for celebration amid shaky stock performance, cost-cutting and regulatory friction over its planned merger with cable company MediaOne.

But the key question is: Will the move benefit AT&T's shareholders and the company overall in the long run?

At the heart of the uncertainty is AT&T's decision to set up its fast-growing wireless business - AT&T Wireless Group - as a so-called tracking stock. In this case, that means that while AT&T sold 360 million shares in the unit to the public -about a 16 percent stake -the New York-based corporation will maintain full control of the wireless business, and their fates will remain inextricably linked. The tracking stock approach has recently gained favor as a way for companies to highlight the performance and value of attractive segments of their overall portfolio. The strategy, tapped lately for wireless, Internet and other techno-centric units, allows the parent company to raise large amounts of new capital without giving up control of the underlying business.

The majority of the tracking stocks already issued have been laggards, trailing the performance of the main company's stock, although some have been huge successes. Although the pool is small, with fewer than 20 tracking stocks trading, some analysts said they question their long-term benefits to investors.

For now, however, investors appear to be shrugging off the risks, giving AT&T's tracker solid backing despite a jittery IPO market that in the last month has forced 50 companies to postpone or cancel IPOs, and several others to reduce their offering prices to entice buyers. The 171 initial public offerings sold this year are down 39.6 percent on average since their first-trading-day closing price, according to CommScan, a New York data firm.

Still, shares in AT&T's wireless unit sold at $29.50 each, the midpoint of the expected range of $26 to $32 set by underwriters Goldman Sachs & Co., Merrill Lynch & Co., Salomon Smith Barney and others. Analysts took that pricing as a good sign given the turbulent stock market.

The tracking stock will trade on the New York Stock Exchange under the symbol AWE, while AT&T will still trade under the symbol T. Many analysts say the prospects are good for AT&T's wireless unit, which has been growing at a fierce pace and providing badly needed revenue growth for the overall corporation.

And while the wireless unit is also spending vast amounts of

capital to expand its network and ease capacity constraints, industry watchers believe AT&T Wireless Group's position as one of the nation's largest carriers will eventually yield greater profits for AT&T as well.

AT&T said it may issue an additional 54 million shares if the underwriters exercise their over-allotment option in full. AT&T said 10 percent of the total offering will be reserved for sale to its employees. After the offering, AT&T said it will initially retain about 82.5 to 84.4 percent of the economic interest in AT&T Wireless, though the company reiterated its intention to eventually dispose of its remaining stake in AT&T Wireless.

The offering's proceeds will go toward further strengthening AT&T's wireless unit, fueling further network upgrades as well as potential acquisitions and expansion overseas, according to Mark Lowenstein, executive vice president of wireless research at the Yankee Group in Boston.

Other wireless companies are planning similar moves. Verizon, a new company formed from the wireless holdings of Vodafone AirTouch and Bell Atlantic, plans to sell shares in that venture, and so does the unnamed wireless partnership formed recently by SBC Communications and BellSouth.