Page 444 - Business Principles and Management

Chapter 16 • Financing a Business

Focus On...

Business Innovation–Taking UPS Public

For most Americans, the brown UPS vans driven by people in brown
uniforms delivering packages to businesses and consumers are a
common sight. United Parcel Service also flies brown airplanes to
make deliveries in many other countries. Since 1927, much of the
company’s equity had been held by the original owners and by
those who participated in the firm’s popular employee stock option
plan. UPS has been a financially healthy company with plenty of
assets and retained earnings. With its sound financial position and
growth strategy, it competes with its archrival, Federal Express. So
why did it decide to change its investment strategy and offer stock
to the public?
In 1999, UPS launched an IPO (initial public offering) that at the
time was the largest in Wall Street history. Its purpose was not the
same as that of the typical fast-growing firm that wants additional
equity capital to gain money for expansion. The real reason it sold
the stock was to benefit its current owners, including its current em-
ployees and retirees. UPS believed the stock’s value would increase
with public trading and the cash raised could be used to buy back
stock from current owners if they chose to sell. Up to this time, the
firm has been a closely held corporation, not a publicly held corpora-
tion. A closely held corporation cannot sell its shares to the public.
The IPO raised what was then a record-setting $5.27 billion through
109.4 million shares of new stock. The IPO now permits the public
and UPS employees as well as retirees and other investors to buy
and sell UPS stock conveniently. In fact, soon after the IPO was
completed, the firm offered to buy the stock from its shareholders
at a price higher than the market price. All shareholders—insiders
and outsiders—were pleased.
Think Critically

1. Assume you considered buying some of the new UPS stock.
Do you think the price would be more than, less than, or the
same as the price employees had to pay before the IPO? Why?
2. If you were retired or nearing retirement at UPS, how would
you benefit from both the IPO and the firm’s offer to buy stock
from its shareholders? If you were an investor but not a present
or past employee, how would you benefit from UPS’s actions?
3. Using your library or the Internet, decide whether today
you would prefer to become an owner of stock in UPS or
Federal Express.

431