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UPS plans to go public
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July 21, 1999: 5:06 p.m. ET
World's largest shipper unwraps plans to list its shares on the NYSE
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NEW YORK (CNNfn) - United Parcel Service Inc., the world's oldest and biggest shipping company, said Wednesday it plans to send itself to the public market, ending its status as one of the biggest private companies in the world.
The 92-year-old shipping company filed a registration statement with the Securities and Exchange Commission for an initial public offering of stock, which would put about 10 percent of the company in public hands, raising what analysts estimate could be in excess of $3 billion. UPS' 125,000 current shareholders -- who are employees of the company -- must vote on the proposal first.
A key objective is to give UPS some extra cash in the bank to acquire business-enhancing companies, particularly in Europe, said James Kelly, who joined UPS in 1964 as a delivery boy and is now chairman and chief executive officer.
"The offering is to allow UPS to make significant strategic acquisitions in important markets around the world," Kelly told reporters in a conference call. "I can't name any names, but there are a lot of new markets and opportunities out there."
Enthusiastic reception
Analysts greeted the news with unabashed enthusiasm.
"It blows my mind that a $25 billion dollar company is going public," said Alex Brand, a transportation analyst at Scott & Stringfellow Inc. in Richmond, Va. "It is truly incredible. That will be one issue everyone will be clamoring for."
While UPS declined to say how much money they hope to raise from the offering, analysts quickly pulled out their calculators and turned to UPS' long-time rival, FDX Corp. (FDX), to guess what the shares might be valued at. FDX owns shipping company Federal Express.
FDX stock currently has a multiple of 22.5 times its earnings. It recently traded at 46-3/8, down 7/8 from Tuesday.
According to the proposal filed with the SEC, UPS earned $499 million, or 88 cents per diluted share, in the first three months of 1999, up from $352 million, or 64 cents per share, a year earlier. In 1998, the company earned $1.74 billion, or $3.14 per diluted share, up from $909 million, or $1.63, in 1997.
At 22.5 times earnings, that would put the value of its offering in the 70-range, Brand said, "though I don't think anyone would disagree that it deserves a premium to FDX."
And, Brand said, UPS trading publicly "could knock the value of FDX down a bit, which would be a more likely scenario." He estimates the IPO might be ready for market by the fall.
UPS carried the equivalent of about six percent of the U.S. gross national product through its delivery system last year, and generated sales of $24.8 billion. Memphis-based FDX, by contrast, posted revenue of $16.7 billion for its fiscal year in May and has a current market value of $14 billion.
A plan for employee owners
The plan, as filed with the SEC, would create a class A common stock, which would have 10 votes per share and would be distributed to the current employee-shareholders of UPS. New class B shares, with one vote each, would be listed on the New York Stock Exchange.
Structuring the offering in that way rather than simply filing to sell ordinary shares was a way for the company to retain its employee-owned status and allow the workers to benefit from an IPO, Kelly said.
That's because it gives UPS employees a way of cashing out -- something they could not do in a public forum under the company's current privately owned but employee shared corporate structure, Brand said.
"They get the best of both worlds -- they retain the employee owned culture and they inherit a liquid instrument that can sell at any time," Brand said.
Kelly said proceeds from the share sale will be used, in part, to buy back some of the shares from current shareholders, hopefully within seven months after the offering takes place.
There are currently 560 to 570 million shares in the hands of about one-third of UPS employees. Each share is currently valued at around 47 a share, Kelly said, putting a sort-of market capitalization on the company of $26.8 billion.
Morgan Stanley Dean Witter has been selected as the lead underwriter for the transaction.
Competing globally
To be sure, UPS stands to benefit most from going public by having the ability to compete internationally, said Doug Rockel, a transportation analyst at ING Barings in New York.
Deutsche Post, a state-owned postage and shipping company that the German government plans on privatizing in the next 12 to 18 months, already is gearing up to compete with the likes of UPS. The company has acquired $3 billion worth of private enterprises in the past 12 months, including a 25 percent stake in courier firm DHL Group.
Other companies like Australia's T&T Post Group are also beginning to flex their muscles, "which is why it's a good call on UPS' part to do this now," Rockel said. "UPS is the largest shipping company in the world, but they are facing some international challenges right now."
And the name recognition alone is likely to help the shipping giant easily sell its stock to the public, analysts said. UPS has requested it trade on the New York Stock Exchange under the symbol "UPS."
"I've been waiting most of my career to see these guys go public," said Rockel. "I can't think of a bigger and better company in recent memory that's decided to do this."
UPS serves more than 200 different countries worldwide. It employs more than 330,000 people and serves, on average, 1.6 million customers a day.
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UPS
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