Institutional shareholders are enthusiastic about owning at least two of the three companies to be formed out of the breakup of AT&T Corp.
They say AT&T's businesses will be able to compete and grow more easily.
With information still sketchy, institutions said they are likely to hold on to the new AT&T (the communications services division, which includes long-distance, credit card services and the former McCaw Cellular Systems), and the as yet unnamed equipment manufacturing company. The third company - the former NCR Corp. now called Global Information Solutions - could be a "hold" candidate at the right price.
Michael Trotsky, vice president for Independence Investment Associates, Boston, said he was "very optimistic" about the prospects for AT&T's three units to perform better as separate companies. The breakup is the "tip of the iceberg" in terms of what AT&T can do to improve its competitiveness and profitability, he said.
An announcement of personnel cuts of more than 20,000 people at the three companies is another positive for shareholders. "Each of the businesses (will) have unleashed earnings power," he said.
Independence owns about 7.5 million shares of AT&T, and is likely to hold on to all of its shares after the split, although it is too early to say anything definite, he said.
Phyllis Thomas, managing director for NWQ Investment Management Co., Los Angeles, said: "We think this is a brilliant stroke on the part of AT&T." The resulting companies can focus on their own lines of business, and work toward cutting costs, she said.
NWQ owns about 2 million shares of AT&T. She said what NWQ decides to do with its shares will depend on pricing and how debt is allocated among the divisions.
Institutional investors said AT&T's phone equipment division is likely to benefit the most from the split.
Jeffrey Heil, vice president and senior investment officer for KeyCorp, Cleveland, said the phone equipment company will be better able to do business with communications services companies.
Now, those companies sometimes don't want to do business with AT&T's phone equipment unit because a sister unit is a competitor in communication services.
In part because of that conflict, growth has not been as good as it has at some of AT&T's competitors in communications equipment. Recently, AT&T lost in a bid for an $800 million order from GTE Corp., Mr. Heil said. AT&T's main competitors in communications manufacturing include Northern Telecom Ltd., LM Ericsson and Nokia Corp.
Although KeyCorp's money managers are positive on the deal, as a hedge, they sold about half of the estimated 8 million shares they control after the breakup was announced Sept. 20, he said. On that day, AT&T's stock price jumped 61/8 to 633/4, a rise of almost 11%. As of Sept. 26, it closed at 641/8.
What KeyCorp does with its shares going forward will depend on how the resulting companies are priced by the market. Mr. Heil said estimates of AT&T's value vary widely among stock brokerage firms, ranging from the low 60s to the mid-80s. Prices could be volatile as Wall Street estimates and expectations change, he said.
"Prospects for the equipment side are outstanding," said William Turner, equity research analyst for Banc One Investment Advisors Corp., Columbus, Ohio.
The Baby Bells and other phone services companies had been putting off orders at AT&T because AT&T was seen as a growing competitor to the services they provide.
AT&T's communications services division will not benefit as directly from the breakup, but is viewed to be better off on its own.
Mr. Turner said AT&T's long-distance prospects continue to be good, although its position is not improved as measurably in this area as it is in communications equipment. As separate companies, the incentives to improve profitability will be greater, he said.
"I wouldn't be too quick to get rid of any of the pieces," he said.
Both units are "long-term winners," said Mark Williams, vice president for INVISTA Capital Management Inc., Des Moines. The company's managers already were positive on AT&T before the announcement, and think the break will create a win-win situation for everybody involved. The firm owns about 2.9 million shares of AT&T, he said.
Investors were less positive on the third AT&T unit to be spun off - its Global Information Solutions unit - but don't rule out a happy ending.
INVISTA's managers aren't sure what they'll do with the GIS company shares that result, Mr. Williams said. INVISTA's executives never liked the computer aspect of AT&T, he said, noting GIS has been a drag on earnings as a whole at AT&T. With the breakup, which includes an exit from the personal computer business, GIS will be able to focus on its strengths, which are the businesses that it succeeded in before AT&T bought it, such as computerized cash registers, Mr. Williams said.
Mr. Trotsky of Independence said that while everyone knows GIS has been losing money for AT&T, "they can only get better," with the cost cutting and product realignment taking place there.
In general, AT&T in three parts may attract more interest from institutional investors than it did as one company. Previously, institutional ownership was relatively low, about 35% of shares as of the end of June, according to CDA Spectrum 13(f) Institutional Stock Holdings, Rockville, Md. AT&T's savings plan holds 120 million shares, while its employee stock ownership plan holds 11 million shares.
Other large shareholders included J.P. Morgan & Co. Inc., New York, which owned 13.5 million shares at June 30, and Morgan Stanley Group Inc., New York, which owned 11.1 million shares, according to CDA. Executives at both firms declined to comment.
Fred Williams contributed to this story.
