UPS's Record IPO

By Yi-Hsin Chang (TMF Puck)

(Nov 10, 1999) -- United Parcel Service (NYSE: UPS) set a record for a U.S. initial public offering (IPO) last night by raising an astounding $5.47 billion at $50 a share. This wasn't your typical IPO. The world's largest package-delivery company had no trouble selling a whopping 109.4 million shares, or 10% of its outstanding stock, to the public. An overallotment for underwriters could push the total offering to 120.3 million shares, or $6.015 billion.

The offering price of $50 a pop was significantly higher than the $36 to $42 range the company originally announced last month, and more than the latest buzz of $47 to $49 a share. UPS shares begin trading today on the New York Stock Exchange under the symbol "UPS."

With its $5.47 billion offering, UPS unseats Conoco (NYSE: COC.A) as the largest-ever U.S. IPO. Conoco raised around $4 billion when it went public in October of last year. Goldman Sachs Group (NYSE: GS), by the way, has now been bumped to the number three spot with its IPO earlier this year of $3.66 billion.

I first wrote about UPS this past summer in a Motley Fool special feature called Companies We Wish Were Public. I picked Atlanta-based UPS because:

  1. UPS is a phenomenal brand. Its brown delivery trucks not only deliver packages but serve as ubiquitous moving billboards for the company.

  2. This company is growing and profitable. For the past four years, including the stagnant year that resulted from the well-publicized UPS strike, revenues have grown 6% a year on an annualized basis -- not bad for an established, multi-billion-dollar firm. Last year, net earnings increased to $1.7 billion from $909 million.

  3. UPS is the shipping industry leader in e-commerce and ships for 6 of the top 10 Internet retailers, including Amazon.com.

  4. Unlike all too many traditional offline companies, the company has a full-blown Internet strategy and already offers a full line of e-commerce solutions to businesses, hence its new slogan "Moving at the speed of e-business."

  5. The company remains mostly owned by its employees. This tightly binds the interests of employees to the interests of the company. No doubt the successful IPO has made many employees richer, and more dedicated and excited about the company.

  6. Because UPS shares have long been widely held, at least among its employees, it already has a track record of reporting quarterly results. Click here for the company's third-quarter numbers.
In July, I interviewed UPS Chairman and CEO Jim Kelly, who explained that the IPO gives the company "additional financial flexibility to pursue strategic alliances and acquisitions" in a very competitive environment. "We'd like to be viewed as a 92-year-old company that has a great brand that does a wonderful job at what we do, and that certainly includes electronic commerce."

Incidentally, UPS's IPO was led by Morgan Stanley Dean Witter (NYSE: MWD), which, according to The Wall Street Journal, won its lead underwriting position with a cold call back in 1996 that became an ongoing relationship.

Not surprisingly, the Fool's UPS message board has been hoppin'. So check it out and share your thoughts on UPS and its record-setting IPO. Here are some questions to ponder: What's your take on UPS's prospects? Will UPS join the Dow Jones Industrial Average in the near future? Will the IPO affect the shares of Federal Express parent FDX Corp. (NYSE: FDX)? (See yesterday's Fool On the Hill column on this.)

For those needing a primer on initial public offerings, read The ABCs of IPOs.

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