The most recent price quote for United Parcel Service shares before the company first sold stock to the public was $25.50. An article last Thursday reported a price that was set before the stock was split 2-for-1 as part of the offering. (Published 11/17/99)
United Parcel Service of America Inc., an icon of the old economy with fleets of trucks driven mainly by men in brown uniforms, emerged from 92 years of privacy today a gleaming symbol of the digital age.
Stock of the company known as Big Brown began trading on the Big Board, after raising $5.47 billion through the country's biggest public share offering ever. The mega-deal, which made millionaires of UPS managers and enriched some rank-and-file employees, demonstrates how dot-com wealth is spilling into the bricks-and-mortar world.
With 500 airplanes and 149,000 trucks, UPS has exploded overnight by herding shoes, CDs, clothes and books ordered online by individuals and by businesses selling to one another. Last year, the company said, UPS moved 6 percent of the gross domestic product and half of all Christmas gifts purchased electronically, raking in more than $24 billion in sales and $1.74 billion in net income.
Now, it has turned to Wall Street to raise money to keep up with the growth in electronic commerce, which its research predicts will reach $3.2 trillion in 2003. And suddenly it is considered on Wall Street to be "Internet play"--a term investors generally have attached to those ever-proliferating online companies that have no profits, histories, plants or big staffs.
"If you think about the Net being a brutal war between Amazon and Barnes & Noble, would you rather be a combatant or somebody who sells the bullets?" asked Doug Pratt, who today added UPS to his $340 million portfolio at Bricoleur Capital Management in San Diego. "UPS sells the bullets."
Pratt had to go into combat Tuesday night for a piece of UPS at the $50-a-share offering price. With 10 times as many orders as shares available, Atlanta-based UPS sold 109.4 million shares--9 percent of the company.
On its first day of trading today, the stock surged 35 percent, closing at $67.37 1/2 on the New York Stock Exchange. Today, all its shares together are worth $81 billion, making UPS one of the most highly valued companies in America--above Ford Motor Co. and Hewlett-Packard Co.
Most of those shares were held by managers who have for decades received them as annual bonuses, along with charitable foundations and heirs to the company founders. A smaller portion was held by drivers, who earn $60,000 to $70,000 a year; secretaries; telephone clerks; and other hourly employees who won the right to buy them in 1995, as part of a new 401(k) plan.
"I bought as much as I could--and more," said driver Phillip Stocks, 56, who had to fight through throngs of reporters and photographers--asking "How does it feel to be rich?"--to get out of the main UPS plant in Atlanta today.
Previously, employees could sell the shares back to the company for $47--a price set by the board of directors. But when the plans to go public were announced in July, all trading was frozen--and outsiders began positioning themselves to get in.
"Everyone knows the brown truck, the UPS guy," said Randall Roth, a senior analyst at Renaissance Capital's IPO Plus Aftermarket Fund. "Large funds will want it--and so will small investors."
Making his rounds in Manhattan lately, United Parcel Service driver Andy Grieshaber has been besieged by questions from customers. "When's it happening?" they whispered. "Can you get a whole bunch upfront and sell us some?"
All this fuss about a non-Internet company?
UPS, founded as a small bicycle messenger company at the turn of the century, is about as un-virtual as they come. It has warehouses, vehicles and about 330,000 employees, delivering more than 12 million packages a day--the old-fashioned way.
Increasingly, those products it delivers are purchased online. So, much like Federal Express, it is considered a safe back door to the Internet craze--vulnerable to fuel prices but not a likely victim to some Internet shakeout.
"Portfolio managers have the attention span of 3-year-olds," Pratt said. "You don't need to understand TCP/IP protocols to understand UPS."
The sale comes during a record year for public stock offerings. Roth estimates that more than 400 deals this year raised $50 billion--including Martha Stewart Living Omnimedia, World Wrestling Federation Entertainment Inc. and Goldman Sachs Group Inc., which raised $3.7 billion. Until now, the Conoco Inc. public offering in October 1998 was the biggest ever, raising $4.4 billion.
"This is an indication of what a lot of bulls have been saying," said Roth. "Why be a private company?"
UPS will use part of the money to buy back about $4 billion of its class A voting shares from employees. It will also embark on aggressive expansion--in Europe and in the burgeoning business-to-business market, which represents about 20 percent of UPS's business. At the center of that push is a high-tech system that helps companies track inventory.
David Menlow, president of IPOFinancial.com in Millburn, N.J., noted that UPS may use this stock sale as a marketing tool. "When people own your company, they become interested. I'm sure there were people who used FedEx because they owned it. There are people who will make a point of using UPS now."
But there may be a price to pay. UPS is worried that the new attention will dramatically reshape its culture, built on promoting line workers from within and opening distribution centers in college towns.
"It will be a shock to its insular culture," said Benn Konsynki, a professor at Emory University's Goizueta Business School who has served as a consultant to UPS. "The lens changed today, when everyone started looking at the stock price."
Before today's IPO, about 17,000 retirees, 40,000 members of management, 66,000 hourly employees and roughly 3,000 heirs to the original founders own the stock. Chairman James P. Kelly owns 207,172 shares that were valued at about $14 million.
Employees with the foresight and finances to stock up on their employer's shares were rejoicing yesterday, particularly because a stock split three weeks ago doubled their holdings.
"I am still trying to absorb what this means to my lifestyle," said Stocks, who has been a driver for nearly 29 years and who plans to retire in three years.
In 1995 the company offered employees the option of taking a lump sum in lieu of UPS stock. Stocks estimates that 1 in 10 people he knows "took the money and ran." Today, there was a gaping divide. "Those who didn't take it are kicking themselves," Stocks said. "They were very upset. And I don't blame them."
A Successful Package
UPS's initial public offering yesterday was the biggest yet in the United States. Here are the top 10:
Company Amount Offering Yesterday's
(date of IPO) raised price closing price
United Parcel Service $5.5 billion $50.00 $68.25
Conoco 4.4 billion 23.00 27.371/2*
Goldman Sachs 3.7 billion 53.00 71.933/4
Charter Communications 3.2 billion 19.00 25.00*
Lucent Technologies 3.0 billion 27.00 75.50
Infinity Broadcasting 2.9 billion 20.50 33.871/2*
Fox Entertainment Group 2.8 billion 22.50 20.871/2*
Pepsi Bottling Group 2.3 billion 23.00 17.121/2
Allstate 2.2 billion 27.00 30.50
Associates FirstCapital 1.9 billion 29.00 33.181/2*
SOURCE: Thomson Financial Securities Data
CAPTION: UPS Chairman James Kelly, center, rings the NYSE's opening bell.