Not All UPS Employees Are Created Equal (Fool on the Hill) November 15, 1999

An Investment Opinion

Not All UPS Employees Are Created Equal

By Yi-Hsin Chang (TMF Puck)
November 15, 1999

It's easy to get excited about an IPO -- especially one that raises $5.47 billion in one night. Living just a block from the New York Stock Exchange, I got to see some of the hype that went along with United Parcel Service's (NYSE: UPS) record-setting debut last Wednesday as a publicly listed company.

The company worked furiously overnight to set up the front nose of a UPS cargo plane, a bona fide UPS truck, and a tent complete with computers to show off the company's Internet offerings -- all on the side of the stock exchange. Euphoric UPS employees were on hand to don passersby with brown UPS jackets and caps for instant snapshots with the plane or truck in the background. The company even passed out delicious chocolate fudge "brownies" wrapped in gold ribbon to mark the occasion.

UPS, whose initial public offering price was $50, finished its first week of trading at $70 1/2 last Friday -- that's a 41% gain in just three days. Shareholders should be happy, and that means employees of UPS, right? After all, they own 90% of the multibillion-dollar company.

Well, the problem is that not all UPS employees are created equal. Clearly, there's a divide between the company's management and the rest of its employees. As of July, about 125,000 employees owned stock through the company's employee stock purchase program, meaning that around 38% of UPS's 327,000 employees held shares in the company and "got rich" from the IPO. That left roughly 62% of UPS employees on the sidelines, merely watching the meteoric rise of the company's newly public stock.

As I pointed out in July right after UPS announced its plans to go public, I have reservations regarding the company's labor relations. My fears were and continue to be reinforced by e-mail I have received from UPS employees conveying their dissatisfaction with the company. I imagine the high-profile IPO served to exacerbate some of the tensions that already existed between management and employees.

Take this e-mail I received last week from a union member from Canton, Ohio who said, "Wall Street would be a little less enthusiastic about UPS if they were really part of the operations." He is upset because bargaining unit employees were supposedly barred from investing significant sums of money from their UPS/Teamster 401(k) savings plans in UPS stock, while management employees were allowed to do so. Whether or not this is true, the important thing is that there's a perception of inequality by some "brown-collared" workers, and that doesn't bode well for UPS or its shareholders.

No doubt you remember the 1997 15-day UPS strike that affected so many of our lives and hurt the U.S. economy, not to mention UPS's revenues and earnings. In fact, the company still hasn't recovered from the strike in terms of package volume, though it has made up for it with higher revenue-generating services. A repeat of that strike would most certainly knock the wind out of UPS's high-flying stock. The good news is that the current labor contract doesn't expire until 2002, and CEO Jim Kelly maintains that management has established good relations with truck drivers and the unions.

There are quite a few UPS employees posting messages on the Fool's UPS message board under such monikers as "oldtimer," "oldbrown," "BigBrownGuy," "UPSDave," and so on. While comments should be taken with a grain of salt, it is interesting how the Internet allows everyday employees to voice their views -- right or wrong -- to a mass audience. It's a good way to let off steam, but it's also how some rumors get started.

I remain optimistic about UPS's prospects. It's a great brand with a compelling Internet strategy, though it faces stiff competition from FDX Corp's (NYSE: FDX) Federal Express and, more importantly, from the U.S. Postal Service. I for one will follow UPS's performance with great interest. This column is just a reminder not to get caught up in the hype of a hot IPO, but to do your own homework and evaluate the potential threats to UPS's success as well as the many opportunities the company faces.

Related links:
UPS message board
UPS Special, 11/10/99: UPS's Record IPO
Fool on the Hill, 7/22/99: UPS Makes Wish Come True
The ABCs of IPOs