The fate of AT&T Universal Card Services Corp. has become a topic of speculation as its parent contemplates getting back into the local telephone business.
Needing capital for such a push, AT&T might covet the handsome prices the credit card company and other operations might fetch as spinoffs, analysts say.
For the moment, AT&T is not commenting. But the mere idea that the 23 million-card Universal unit could be on the market is causing a stir.
This is not the first time analysts have mused about a possible spinoff of the five-year-old card unit, but this round is fueled by a report last week in The Wall Street Journal that AT&T has a plan to again offer the local phone services it had to abandon under its 1984 breakup decree.
Opinions differ as to why AT&T would divest Universal Card Services - it would be the biggest such credit card move since Signet Financial Corp. spun off Capital One Financial early this year - but it is widely assumed that Ma Bell is thinking about it.
"AT&T has a lot of things that it wants to do that are more related to the telephone business, so a spinoff is something they would consider," said telecommunications analyst Robert B. Wilkes of Brown Brothers Harriman & Co.
Other business units such as AT&T Global Information Solutions, formerly NCR Corp., and AT&T Network Systems are also spinoff candidates. But firm decisions are not likely to be reached before the passage of telecommunications reform legislation, which is expected later this year.
Arguments in favor of a card spinoff range from the positive effect it would have on AT&T's stock price to removing debt from the company's balance sheet and thereby giving AT&T easier access to financing for any foray into local phone markets.
Telecommunications analyst Douglas C. Ashton of Hancock Institutional Equity Services said he believes a spinoff would make sense because corporate investors would be able to select the parts of AT&T in which they are interested.
"It's the old story where the parts are worth more than the whole," he said, referring to an investor's ability to purchase shares of Universal Card Services if it had its own stock.
Another result of issuing separate shares for the card business, said Salomon Brothers financial services analyst Thomas P. Facciola, is that the top management could have an equity interest in the company and therefore would direct incentive to work toward its success.
Assuming AT&T continues to believe in the synergies between its card and telephone services, it would likely want to keep a controlling ownership stake of at least 51% in a separate card company.
Some observers contend that Universal Card Services has outgrown its original mission. When it was launched in 1990, the general-purpose credit card, which included a telephone-calling discount, was supposed to enhance the parent's core business.
"AT&T was not as interested in being a bank as it was in getting the customer contact," observed a bank analyst.
That strategy has not changed. But Universal's size - its $12.5 billion of receivables places it sixth among bank card issuers - forces it to "act more like a credit card company and less like a unit of a telephone company," said Michael Auriemma, president of Auriemma Consulting, which helped work on the Universal card's launch.
Paul G. Kahn, AT&T Universal's first chief executive officer, resigned in 1993 to become chairman of SafeCard Services Inc., now Ideon Group. Mr. Kahn reportedly was unsuccessful at convincing AT&T Corp. to broaden the Universal unit's financial services beyond credit cards.
AT&T is probably no closer to doing that today than it was when Mr. Kahn was in charge. And outside observers said they don't anticipate a radical strategic shift if Universal Card Services is cut loose.
"Maybe you will see an increased aggressiveness and greater mail volume," Mr. Facciola said.