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UPS IPO may be largest
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October 20, 1999: 6:25 p.m. ET
$36-$42 range, compared to current 25-1/2 value, would raise up to $4.6B
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Big Brown is in line for a lot of green, as United Parcel Service Inc. set a price range Wednesday for its upcoming initial public offering that could make it the largest in U.S. history.
The Atlanta parcel delivery giant, the world's largest transportation company, set the price at $36 to $42 a share, which would raise the value of shares between 41 and 65 percent above what the privately held stock is now worth.
The IPO
would raise between $3.9 billion and $4.6 billion. The largest U.S. IPO was the $4.4 billion raised for DuPont Co.'s Oct. 21, 1998, sale of 30 percent of its stake in Conoco Inc., the Houston oil company. However, there have been several European privatizations of state enterprises that raised more.
UPS shares are scheduled to hit the market in early November. Road shows for investors start next week. Those presentations could put pressure on some UPS competitors, according to Edward Wolfe, analyst at Bear Stearns. He pointed to FDX Corp. (FDX), owner of Federal Express Corp., and Airborne Freight Corp. (ABF), which operates Airborne Express, as a competitors that may not benefit from the attention.
"I think FedEx's stock will be under a little bit of pressure, because UPS will be comparing and contrasting numbers," Wolfe said. "UPS saw volume growth of 14.5 percent on overnight product in the most recent quarter. FDX saw only 3.9 percent. It's too early to tell if UPS is taking away market share, but that will be the implication that comes out on the road show."
Wolfe said he hasn't had a chance to set a target price for the stock, but said interest in the issue is keen among investors.
"There's tremendous demand for the offering," he said. "I get more questions about this on almost a daily basis than anything else."
The current share price is set at 51 by the UPS board. The price has dropped only once in the company's history, after a two-week strike in August 1997.
As part of the offering, those shares in UPS of America will be exchanged for two shares of the new corporate entity, UPS Inc., which then will sell the stock publicly, creating the equivalent of a 2-for-1 stock split for current shareholders. Shares are to trade on the New York Stock Exchange under the symbol UPS.
There are about 125,000 shareholders, with about one third of shares held by active employees, one third by retirees or their estates, and the rest controlled by various trusts and foundations set up by the company's founders.
The IPO will put only 10 percent of the company's shares on the market. Because of that, its market capitalization will likely start in the $40 billion to $46 billion range. Its current market capitalization is $27.9 billion. FDX's market cap is $11.7 billion.
All funds raised by the UPS offering are to be used to repurchase shares from existing holders. The existing shares will have 10 votes compared to one vote for each of the publicly traded shares, keeping control of the company firmly in the hands of current management.
The company said a judge on the Delaware Chancery Court denied a motion Monday for preliminary injunction requested by a UPS share owner, who sought to block a scheduled shareholders' meeting there Oct. 25 to consider the IPO. The company testified in that case that proxies for more than 80 percent of the shares had been received approving the IPO plan.
UPS had net income of $557 million in the third quarter, on revenue of $6.7 billion. Despite being unionized, its size and low-cost ground delivery network has given it among the best profit margins in the freight industry.
It has one of the best credit ratings of any corporation and is cash rich, with $2 billion in cash or cash equivalents on hand at the end of the last quarter, so it did not need the IPO to make acquisitions. But company officials said they were hampered by not having a publicly traded stock that they could use as a currency in transactions. They also wanted to create a market for the shares held by employees.
The lead manager of the issue is Morgan Stanley Dean Witter, with Goldman Sachs and Merrill Lynch & Co. serving as senior co-managers and Credit Suisse First Boston, Solomon Smith Barney and Warburg Dillon Read acting as co-managers.
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United Parcel Service
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