Of Tracking and Quacking, Or Why AT&T Ducked
AT&T tells the world that it's a "broadband communications" company ready to serve your every need, be it a wireless phone, long- distance service, an Internet connection or cable TV. In reality, though, what AT&T has really become is a marketing company. And what it's marketing most successfully lately is its stock.</br></br>AT&T's full-bore stock-promotion campaign explains why the company announced yesterday that it's creating a separate "tracking stock," to be called AT&T Wireless Group, that will be tied to--duh!--AT&T's wireless business. News of AT&T's plans, reported in the Nov. 22 Wall Street Journal but not confirmed by the company until yesterday, sent AT&T stock up almost 25 percent in just four trading days. (On the fifth day, the stock ran up some more, but that was because of a "buy" recommendation issued by an influential telecommunications analyst, Jack Grubman of Salomon Smith Barney, who had been bearish on AT&T for years.)</br></br>Why in the world would a tracking stock that changes absolutely nothing about AT&T's basic business add $35 billion to its stock- market value in just four days? As we used to say at Forbes magazine, it's the principle of "When the ducks quack, feed them." Or, as marketers say, give the customers what they want. Wall Street loves wireless companies and it also loves tracking stocks, which are securities tied to a particular business within a company. A wireless tracker? Such a deal.</br></br>AT&T biggies have been grumbling for months, because the company's stock had been trading in the 40s even though Wall Street analysts valued AT&T's assets at $60 to $70 a share. So AT&T is scattering duck food, trying to put its stock on the fast quack.</br></br>The fact that companies cater to Wall Street's ever-changing whims isn't exactly news. But AT&T's providential rise from $46.56 1/4 on Nov. 19 (the last market day before the Journal story) to $57.43 3/4 on Nov. 26 came at a very convenient time. For starters, through Nov. 19, AT&T had way underperformed arch competitor MCI WorldCom. AT&T's stock had fallen 8 percent for the year, while WorldCom's had risen 26 percent. The surge closed most of the gap. For companies like AT&T and WorldCom, stock price is more than just a way to keep score.