Cingular Cash Could Spark Telco Rally

The AT&T Wireless (AWE Quote - Cramer on AWE - Stock Picks) windfall could give the earthbound telecom sector a much-needed lift.

Shareholders of the struggling Redmond, Wash., wireless service provider are about to find $41 billion in their pockets. Rival Cingular is due to complete its all-cash buyout as soon as this week, closing a deal reached in February.

While some investors will surely take their check from Cingular and run, others seem likely to plow the proceeds back into the industry. Big fund managers, looking to maintain their sector weightings, could look to load up on other telecom stocks. That could mean good things for Cingular parents SBC (SBC Quote - Cramer on SBC - Stock Picks) and BellSouth (BLS Quote - Cramer on BLS - Stock Picks), as well as for wireless rivals Verizon (VZ Quote - Cramer on VZ - Stock Picks), Sprint (FON Quote - Cramer on FON - Stock Picks) and Nextel (NXTL Quote - Cramer on NXTL - Stock Picks).

"There will be a substantial amount of cash available and there's no doubt it will be a good thing for telecom," says a New York hedge fund manager who is long the Bells, Nextel and Sprint. Shares of all the telecom giants slipped modestly Monday, with the exception of AT&T Wireless, which moved up a dime to $14.90.

Regulators granted conditional approval of the deal Monday, saying they wouldn't block the merger if the companies divest themselves of assets in 13 markets spread over 11 states. Officials at SBC and BellSouth, the Cingular joint venture's parents, say they expect a speedy resolution. On a conference call with analysts Monday, BellSouth executives said that once regulators give the OK, it would take a "day or two to close."

AT&T Wireless partner NTT DoCoMo (DCM Quote - Cramer on DCM - Stock Picks) is the company's biggest shareholder, with some 17% of the stock. DoCoMo will get about $7 billion for its stake.

Arbitragers -- investors who hope to profit from the difference in AT&T Wireless' share price and the $15 buyout price -- hold a hefty chunk as well. Excluding the DoCoMo stake, the so-called risk arbs hold perhaps as much as half the remaining shares, observers say.