Capital Markets

AT&T Wireless: Tale of a Tracking Stock

Investors who stayed with good ol' AT&T fared much better.
Ed ZwirnFebruary 19, 2004

AT&T Wireless may have spent less than three years as an independent company after its 2001 spinoff, but it has lasted nearly four years as a publicly owned stock.

The company, which agreed early Tuesday to a $41 billion purchase by Cingular, “will be remembered as an emblem of the way Wall Street fads come and go, enriching investment bankers while damaging investors,” according to an article in Wednesday’s New York Times.

The fad in this case is the “tracking stock.” Invented as a gimmick to bring out the value of companies such as staid old Ma Bell by enabling investors to make money from subsidiary activities, the AT&T Wireless tracking stock was somewhat of a bust from the start, according to the article.

When its initial offering was sold to investors on April 26, 2000 — during a time when investors in new offerings expected their stocks to soar overnight — the stock rose only 8 percent on its first day. The stock peaked at $36, or 22 percent over the offering price, on May 1, 2000.

A year later, continues the Times, shareholders of AT&T stock were offered a choice: keep their shares, or trade them for shares of AT&T Wireless, which had fallen to $18 a share.

By the Times’s calculations, investors who had simply sold their share would have received $21,060 at the time. Had they held on to their shares in the parent company, they would now hold a diversified portfolio — including Comcast Class A stock and even some shares in AT&T Wireless — which, added to dividends received, would add up to a total value of $19,203.

Investors who chose to swap fared the worst, according to the Times: they ended up with shares of AT&T Wireless worth $17,640 if the Cingular deal goes through.