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Inside Track: AT&T Officials Hang Up on Some Stock

December 6, 1995

Some of the architects of AT&T Corp.’s breakup have sold some of their holdings in the telecommunications giant.

Seven senior executives exercised options for 281,403 shares between late October and early November. The transactions, which have a value of $17.6 million, occurred some weeks after AT&T said it plans to split into three separate, publicly traded companies.

AT&T’s stock price leapt to a 52-week high, in the $60 range, immediately after its Sept. 20 announcement, and has been climbing ever since. Tuesday, it was unchanged at $67.125 in New York Stock Exchange composite trading.

The options sales come amid great uncertainty among AT&T’s 300,000-plus workers, some 10 percent of whom may lose their jobs as assets are spun off or sold in the mammoth restructuring. Even as it is pressing ahead and assembling plans to operate in a new, pared-down incarnation, AT&T is battling intense competition on long-distance service and computer equipment. Third-quarter net income dropped 75 percent, and total company revenue was up 5.7 percent, its lowest rise in more than a year.

Most of the options weren’t set to expire, according to CDA/Investnet, a database that tracks insider buying and selling. ``Here you have a situation where insiders typically retain the majority of their holdings in options instead of stock,″ said Bob Gabele, CDA/Investnet’s president. ``There’s certainly a lightening-up consensus going on among these insiders.″ In his newsletter, Mr. Gabele estimated that several executives cut their exercisable options holdings by more than half. But an AT&T spokesman said the drop is far smaller, between 1 percent to 20 percent of their total stake in the company.

Typically, analysts say, insider selling makes more of a statement at a small, emerging company than it does at a behemoth such as AT&T. In this case, the shares being sold are far less significant than who is selling them. ``Hopefully, management is just taking advantage of the strong equity market recently for some nominal profit-taking,″ said Kenneth Leon, a Lehman Brothers analyst. ``There’s nothing wrong with taking some profits, but the market is very interested in how AT&T will execute its restructuring and maintain double-digit growth.″

Of the options exercised, 189,003 were sold in the open market, according to CDA/Investnet, and the rest were exercised for cash instead of shares. In other words, the executives relinquished their shares to AT&T, taking instead the cash equivalent.

Among those disposing of options were: Robert E. Allen, AT&T’s chairman and chief executive officer, who on Oct. 30 exercised and relinquished 16,539 shares; and William B. Marx Jr., AT&T’s executive vice president and chief executive of multimedia products, who on Oct. 26 exercised options, sold 69,720 of them and disposed of another 14,326. After the breakup, Mr. Marx will be senior executive vice president of one of the three new public entities, the systems and technology company.

On Nov. 6, Richard Bodman, senior vice president for corporate strategy and development, exercised and sold 31,250 options. That same day, Harold Burlingame, senior vice president for human resources, exercised and relinquished 5,018 options. John Zeglis, the company’s senior vice president and general counsel, exercised 57,229 options, selling 16,963 and relinquishing 40,266. The largest transaction came from Victor A. Pelson, AT&T’s executive vice president and chairman of the global operations team, who exercised options for 86,726 shares. Mr. Pelson has announced he’ll retire from the company at the end of March 1996.

Messrs. Zeglis and Burlingame are on the transition team appointed to manage AT&T’s split into a communications services company, telecommunications equipment and computers.

A spokesman for AT&T said the options exercises and sales occurred during a regular window when such transactions are permitted. The sales don’t reflect any negative view about the company on the part of its executives.

``They are all very positive on the long-term prospects for the company,″ the spokesman said. He noted that many of them had been with the company more than 30 years and had a significant portion of their net worth in AT&T stock. ``If you look at it in the context of their tenure at the company and their holdings overall, it’s not unexpected or surprising″ that they would sell some shares, he said.

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