T-Day on Wall Street

By John S. DeMott

Brokers brace for a flood of trading in the new A T & T stocks

One of the axioms of geometry is that the whole is equal to the sum of its parts. Sometimes, though, the parts can add up to more than the whole. To the delight of Wall Street, that is what seemed to be happening last week with American Telephone & Telegraph.

As part of the breakup of the phone company, which will take place Jan. 1, A T & T last week filed 53,000 documents with the Securities and Exchange Commission. The papers projected 1984 sales, profits and dividends for the eight companies that will come into existence when the familiar Ma Bell is split up. The first quarterly dividend next year for all eight firms is expected to total $1.365 per current share of A T & T stock. That is 1 1/2-c- more per share than the old A T & T has been paying for the past three years. Said Robert Allen, chief financial officer for A T & T: "The parts are more than the whole."

After the figures were announced, the price of A T & T stock rose by 1 1/8 to 63 1/8, on a one-day trading volume of 2.2 million shares, one of the heaviest ever for any single stock. It was a sizable movement for A T & T, which rarely goes up or down by so much in one trading session.

With 3.2 million shareholders, 2 million of them holding fewer than 100 shares, A T & T is the most widely owned stock in the world. But the mood concerning A T & T among both market experts and amateurs has been jittery. Said Robert Rubin, a partner and trader at Wall Street's Goldman Sachs: "Most institutions are just as confused as individual shareholders." Early last week, A T & T fell by more than a dollar in a single day on the basis of one analyst's speculation that the phone company's dividend might go down for the first time.

The documents filed with the SEC, which weighed half a ton, provided the first detailed look at how A T & T thinks the eight new companies will fare after the New Year's Day breakup. The most carefully studied report was a 267-page information statement and prospectus that will be sent to every A T & T shareholder during the next few weeks; printing and distributing that document alone cost $3.9 million. In the study, A T & T projected that its new slimmed-down company, which includes long-distance service, Western Electric and the Bell Laboratories, would show revenues of $56.5 billion for 1984, only about $11.1 billion behind the sales of the old, combined company. It anticipates more than $34 billion in long-distance revenues and at least $15 billion in sales of Western Electric's telephone equipment. The remaining $7.5 billion is expected to come from sales of such products as computers and office information systems.

A T & T expects that the seven holding companies will have combined revenues of $59.4 billion next year, down slightly from $61.4 billion during the past twelve months. But their financial outlook is more uncertain than that of the new A T & T. Hanging over the seven sisters is the fate of a charge that phone users are slated to pay to operating companies for access to long-distance lines. The Federal Communications Commission proposed the charge, which would start at $2 a month for a residential phone and $6 a month for a business one, but the House voted two weeks ago to kill it. The holding companies would lose $2.5 bill ion next year if the access charge does not start.

As soon as the documents were released, Wall Street analysts began grinding out opinions on the value of the various parts of the carved-up company and issuing stock recommendations. All of this was in preparation for trading in the eight firms, which is due to start this week on a when-issued basis. Under that procedure, investors can buy and sell shares now, although the stock will not actually be delivered until Feb. 24, after the new shares are issued.

There will be plenty of telephone stock to trade. Investors now holding A T & T stock will receive one share in each of the seven holding companies for every ten shares of A T & T they own. In addition, the ten old A T & T shares will become ten shares in the new A T & T. Stock in the eight firms will total 1.6 billion shares. Many investors are expected to shift their holdings among the eight companies.

Which stocks will investors buy and which will they sell? Some professionals are tilting toward selling the operating companies but are not buying the new A T & T. Yet Mark Luftig, Salomon Brothers' chief A T & T analyst, predicted a flow of institutional money into the new A T & T. Merrill Lynch, the largest U.S. broker, put out a range of buy and sell prices (see table).

Some analysts are telling customers to do nothing until spring, to wait until some of the chaos subsides. Says Kenneth Rolland, chief of Chemical Bank's trust department, who handles about $15 billion in investments: "There's already more selling pressure than there should be. In six months, when the dust has settled, the value could be higher. I have decided just to wait." But others lean toward a bit of fast trading, on the assumption that all the stocks will reach their highest prices during the next few weeks.

The New York Stock Exchange has been holding seminars for the past five months, trying to prepare for the anticipated rush of trading in telephone stock. Daily volume for the entire exchange is expected to increase from around 85 million to 100 million shares just on the basis of increased telephone trading. A T & T's ticker symbol is a simple T, and when trading in the new A T & T begins on Wall Street this week, T-day will be the longest day.

--By John S. DeMott

Reported by Frederick Ungeheuer/New York

With reporting by Frederick Ungeheuer/New York This file is automatically generated by a robot program, so viewer discretion is required.