Case 2

Case 2 - Date November 7th 2010 From Natalie Bello RD3-1108 To Professor Chen Re United Parcel Services IPO In July of 1999 the United Parcel

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Date: November 7 th , 2010 From: Natalie Bello, RD3-1108 To: Professor Chen Re: United Parcel Service’s IPO In July of 1999, the United Parcel Service (UPS) announced that it was planning an initial public offering that would transform it into a publicly traded company. UPS was a very established business with significant revenues and industry market share before deciding to become a publicly traded company. The main dilemma that was a joint concern of both Morgan Stanley Dean Witter & Co. and UPS was the price for the new shares for the launch of the initial offering. There are a variety of factors that UPS and its partners must consider before deciding on a price for the offering; these factors consist of current and future trends in the package delivery industry, UPS’s strength and weaknesses relative to other competitors, UPS’s recent financial performance, and the valuation of comparable companies. One of the many issues when deciding on an initial price offering for UPS’s IPO is the industry comparisons that they would be basing this decision on. The fact is that UPS had a significant share of their industry market and were too large in their industry for the comparisons to be fair. A better comparison would be with the companies that would be considered the “best-of-breed” in their particular industry. UPS’s largest competitor in the ground and express delivery industry was a company named Federal Express (FedEx). Over the years from 1997 to 1999, UPS reported average net profit margins of 6.5% and Return on Equity (ROE) of 25.2% versus 2.8% and 10.6%, respectively for FedEx. The fact that UPS has a higher net profit margin means that they are better at effectively and efficiently controlling their costs, creating a higher percentage of profit when compared to the company’s sales revenues. UPS is able to control their costs more efficiently than FedEx by relying on their ground delivery business more than their air delivery business
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This note was uploaded on 11/28/2010 for the course ACG 2011 taught by Professor Chung during the Spring '10 term at FIU.

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Case 2 - Date November 7th 2010 From Natalie Bello RD3-1108 To Professor Chen Re United Parcel Services IPO In July of 1999 the United Parcel

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